The worsening of inflationary tensions and the fear of shortages as a result of the war in Ukraine increasingly jeopardize the recovery after the pandemic. According to the Funcas forecast panel for March —prepared from a survey carried out among 19 analysis services—, the Spanish economy will grow by 4.8% this year, eight tenths less than expected, given the high uncertainty caused by the war context. If only the responses of the panelists who have modified their forecasts due to the impact of the conflict are taken into account, the average forecast would be 4.6%, one percentage point less than the January assessments.
The wide range between the maximum forecast (6%, according to International Financial Analysts) and the minimum (2.9%, by the consulting firm Metyis) highlights the differences in the starting hypotheses on which the estimates of the panelists. His eyes are on the new sanctions that may be adopted and the path that energy prices may follow in the short term. Since the previous panel, the price of gas has risen 34% in the Dutch TTF market, reaching all-time highs during the first days of the invasion. Oil has also suffered strong oscillations: a barrel of Brent, a reference for Europe, which in January remained below 90 dollars, is trading above 100 dollars this month (with a record of almost 130 on March 8 ).
Food and feed staples such as wheat and maize have followed a similar path, following disruptions to Ukraine’s exports. The port of Tarragona, one of the main gateways for raw materials in Spain, awaits with uncertainty the possible shortage of supply. On the other hand, the bottlenecks in the supply of metals and microchips, highly dependent on the raw materials of the Eurasian giant, have intensified. The return to confinement in some cities in China — decreed due to the rebound in infections — threatens to aggravate the logistical problems of the global economy.
Given the rising cost of inputs, the average forecast of the Funcas panelists for the inflation rate in 2022 has risen 1.9 points, to 5.4%, and the underlying rate (excluding unprocessed food and energy products) is at 2.8%, eight tenths more than in the previous consensus. The increase is even greater if only the estimates that have been modified are taken into account: up to 5.8% for the general rate and up to 3% for the core rate. “Europe is one of the regions most exposed to the risk of stagflation, due to the proximity of hostilities and dependence on Russia, particularly in terms of gas, which determines the electricity bill,” say the analysts at the study house. . In its latest projections, the European Central Bank has increased its inflation forecast, with a CPI that could rise between 5.1% (central scenario) and 7.1% (scenario with stressed energy prices). This is respectively between two and four points more than in the December forecast.
Before the outbreak of the conflict in Ukraine, the main monetary authorities had announced a withdrawal of the stimuli deployed during the pandemic. Their position was no longer comfortable: they faced the daunting task of containing inflation without hurting the post-pandemic recovery path. Faced with the risk of stagflation, this dilemma is now more complex. If the ECB has opted to maintain the de-escalation of the public debt purchase programs, and at the same time leave the door open to increases in interest rates before the end of the year, the Federal Reserve has approved this Wednesday the first increase since 2018, 25 basis points.
With regard to the labor market, the average job creation forecast for 2022 has been lowered by half a point, to 3.5%. The Social Security enrollment figures suggest that, after the strong recovery in 2021, job creation continued in the first two months of the year, although at a lower rate. Despite the worsening of the growth forecast, the estimate for the unemployment rate this year stands at 13.9%, three tenths of a percentage point less than in the previous panel.
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The opinion of the panelists on the international context is wrapped in pessimism. Most consider that the scenario of uncertainty will continue in the coming months, or even worsen. The magnitude of shock facing the economy is at the mercy of the impact of the war in the competition in the markets for energy and other key natural resources.