Policy challenges and implications two years after the pandemic
Fecha: enero 2022
SEFO, Spanish and International Economic & Financial Outlook, V. 11 N.º 1 (January 2022)
Index
Policy challenges and implications two years after the pandemic
Policy challenges and implications two years after the pandemic
Fecha: enero 2022
SEFO, Spanish and International Economic & Financial Outlook, V. 11 N.º 1 (January 2022)
Index
As the COVID-19 pandemic drags on, Spain is grappling with a sharp rise in inflation brought on mainly by higher electricity and energy prices. While inflation is a major risk, we are forecasting continued recovery in 2022, with GDP expected to reach pre-pandemic levels by the start of 2023, underpinned by the assumption of a slowdown in energy-price inflation beginning in the spring.
A new emphasis on policy coordination to mitigate the economic consequences of the COVID-19 pandemic led to a faster than expected European economic recovery, particularly compared to the Global Financial Crisis. However, policy coordination is still a challenge and will require a clear understanding of an unfamiliar economic context, together with strong agreement among European policymakers.
With the COVID-19 pandemic still threatening economic
recovery and inflation running the highest it has this century, monetary authorities in the US and Europe have taken different approaches to normalisation, with US monetary policy likely more hawkish in the short- term. Within this context, Spanish banks will continue to face acute profitability challenges in 2022, which they will increasingly seek to address through digitalisation and transition to a platform-based model.
Spanish and European banks’ net interest margins (NIM) are proving highly volatile due to the “volume effect” on credit, as well as the difficulties in layering a negative rates component into funding costs. Going forward, the considerable sensitivity of banks’ NIM could increase in 2022, depending on the level of compliance with TLTRO eligibility benchmarks.
Many companies that were not viable before the pandemic have survived thanks to financing and policy measures aimed at keeping money and credit flowing during the crisis. As support measures come to an end, these “zombie firms”, now exposed to increased borrowing costs on the back of upcoming rate hikes, may pose a risk to the global economy and financial sector.
To thrive in an era of rapid technological change, companies have two main options – to innovate from within or to grow externally, through partnerships with innovators. One of the more novel options for external growth is corporate venturing, which blends the financing and expertise from experienced corporates with the fresh ideas and business approaches of start-ups.