Escaping the economic crisis caused by the coronavirus is starting to look like an escalating obstacle course. The euro zone will grow 2.7% of GDP this year, Spain will do so by 4%, according to the spring forecasts of the European Commission. Much less than the predictions released in winter, in both cases more than one percentage point. The first cause is dated: on February 24 of this year, Russia invaded Ukraine and, to the human drama of any war, added a new obstacle to recovery.
“The war has changed the landscape, causing new interruptions in world supply, fueling new pressures on the prices of raw materials and increasing uncertainty,” justifies the spring report of the European Commission’s Economics department, which is plagued of downward corrections compared to the previous one. The countries that suffer the most are those that are most dependent on Russian energy. Brussels technicians anticipate that Germany will grow by 1.6% in 2022, two points less than they expected three months ago; Italy will do so by 2.4%, a slightly smaller downward correction. A significant rectification is also applied to Spain, 1.6 tenths, up to that 4% that worsens the forecast of the Ministry of Economy by half a point. On the other hand, Portugal improves its forecast, up to 5.8%.
Also for 2023, growth is expected to be lower than that indicated just three months ago. For Spain, 3.4%, one point less than in winter, and for the euro zone, 2.4%, three tenths less.
The Putin contest is the added problem of this quarter. In the previous one it was omicron, the variant of the coronavirus that emerged in November 2021 and caused new restrictions on activity with its consequent economic impact. That already translated into less optimistic forecasts in winter. Those released this Monday are somewhat more pessimistic, although the economy continues to grow with some energy: an increase of 4% in Spain is at the levels of the real estate bubble at the beginning of this century.
Omicron may seem like something from the recent past in Europe, but it’s not in China and that’s hurting the economy. The confinements of the Asian giant, plus the war, aggravate a problem that has persisted since the recovery began: supply problems in the production chains. “They will persist throughout 2022”, ING economists have predicted. And that becomes a perverse combination for another of the problems that plague the recovery: inflation.
The European Commission now maintains that the consumer price index in the euro zone will stand at 6.3% and in Spain at the same figure. This data would anticipate a drop in inflation in the second half of 2022, as the First Vice President and Minister of Economy, Nadia Calviño, predicted a few days ago in EL PAÍS. But months ago the expected drop in the CPI in the second half was greater.
He knows in depth all the sides of the coin.
Of course, it is clear that the course of prices has surprised the Community Executive -and almost everyone- in recent months and, for that, one only has to look at the two forecasts on the CPI for the euro zone released in the autumn and in winter: in November, inflation was predicted for 2022 of 2.2% and in February, 3.5%. This Monday the forecast for this year is 6.1%. Energy, war, interruptions in supply chains are among the causes of the escalation. “Increasing input costs, especially energy and fertilizers, had already started to put pressure on food prices at the end of last year. “Rising input costs, especially energy and fertilizers, had already started to put pressure on food prices at the end of last year. In the production and export of cereals, oilseeds and other cereal products, of which Ukraine and Russia are exporters, the war has intensified pressures”, explain the Commission’s economists.
Surrounded by rising inflation and a waning recovery, plus the uncertainty of the war and the whiplash of the virus in Asia, the Community Executive faces in the coming weeks -or days- the decision of what to do with the fiscal rules of the pact of stability. He suspended them in 2020 so that governments could pull public spending in the face of the economic collapse caused by the pandemic. And so they have continued, through the so-called escape clause, until 2022. At the beginning of the year it seemed that it had been decided to return to normal, but with the first bars of the invasion things seemed to change.
Although as the community report itself points out, all forecasts must be taken with great caution: “The unprecedented nature and magnitude of the disturbances caused by the war mean that the reference projections presented in this forecast are subject to considerable uncertainty”.