Spain: Economic and fiscal outlook
Fecha: julio 2023
SEFO, Spanish and International Economic & Financial Outlook, V. 12 N.º 4 (July 2023)
Index
Financial turbulence has been easing in recent weeks, reflecting the idiosyncratic nature of the Silicon Valley Bank (SVB) and Credit Suisse (CS) failures and the adequacy of the responses by the affected central banks, although some risks remain. Central banks will face an increasingly challenging context as they seek to restore price stability, while minimising outbreaks of financial stress.
Despite a period marked by uncertainty, the Spanish economy has remained resilient, outperforming analysts’ expectations. Export performance has been particularly strong; nonetheless, downside risks remain, particularly those related to a sharper than anticipated monetary policy tightening, vulnerabilities in the shadow banking system at the EU level, and the elevated stock of public debt.
Although the new interest rate scenario is clearly good news for the banks’ margins, the intensity, speed and persistence with which the increases have affected all tenors of the curve have other potentially very adverse effects for the banks more exposed to interest rate risk. While a comparison of EU versus US banks reveals that EU banks are less exposed to interest rate and liquidity risk, these aggregate parameters mask significant dispersion among the various entities on both sides of the Atlantic.
The rise in chats powered by artificial intelligence (AI) places this new development at the heart of the debate about the application of technology in the banking sector. In an environment in which competition will be increasingly digital, it is essential that the traditional banking sector digitalise by making more intensive use of artificial intelligence.
Although Spain recorded a fiscal deficit in 2022 that was worse than expected, lower extraordinary fiscal support measures, together with upside surprises in GDP and employment, make attainment of the 2023 deficit target look feasible. Going forward, any sound fiscal consolidation strategy for Spain should contemplate that the country’s high structural deficit requires gradual but unflagging and urgent correction.
While Spain’s local governments have achieved balanced budgets on the whole, a number of municipalities present fiscal sustainability issues. Addressing these long-standing challenges will require extraordinary measures to improve structural solvency.
An examination of industrial policy in the EU and Spain reveals the need to reduce key external dependencies, or interdependencies, as well as arrive at an adequate path that avoids protectionist retaliation to the recently passed US Inflation Reduction Act, while at the same time harnesses the economic potential of the bloc. Going forward, taking into consideration current obstacles and limitations both at the EU and Spanish level, it will be necessary to embrace the appropriate industrial policy measures to ensure the transformation of the Spanish economy, in particular through maximisation of NGEU funds.