Calibrating the margin of action

It is difficult to adhere to the gloomy perspectives that are predicted by the main international organizations. The Spanish economy has continued to grow in recent months, albeit at a slower pace and with high inflation. The handful of indicators available for the whole of the third quarter (sales of large companies, affiliation, turnover in services) show growth that is still in positive territory.

However, expectations are not encouraging: consumer confidence has plummeted (according to the European Commission’s indicator, the balance of positive and negative opinions is -33, a level that takes us back to the end of 2020) and companies anticipate a sharp decline. The growing concern is based on the loss of purchasing power observed on a daily basis, and its transfer to consumption and investment. In real terms, household disposable income is around 7% below its pre-pandemic level. The fall would be greater, discounting the plus of income associated with the employment generated during the recovery stage, which is now cut short with the energy crisis.

A crisis that could worsen immediately to the rhythm of the price of gas, a barometer of the European situation. According to the Iberian futures market, the price of gas should increase by 35% until the end of the year, and a further 7% during the first quarter of 2023. Other European countries are even showing rationing —something unlikely in our country, and that allows us to harbor less unfavorable perspectives—. The arrival of spring points to a more stable scenario, but with high prices in addition to being subject to the unpredictable evolution of the conflict in Ukraine.

Two relevant conclusions for economic policy can be drawn from this panorama. One, neither governments nor central banks will be able to avoid a strong shock to activity, at least in Europe. A different case is that of the United States, where the energy disturbance is milder and the demand for a more powerful factor of inflation. The shock will be more severe than anticipated if the ECB raises interest rates at the same pace as its transatlantic counterpart without taking into account the specificity of the shock that the eurozone is going through.

Or if governments tried to reverse production restrictions with widespread injections of demand. That is the counterproductive recipe that the United Kingdom is experiencing, with serious consequences for financial stability. Proof of this, British pension funds with leveraged investments (through the instrument of “margin accounts”, a product of shadow banking) have been surprised by the rise in interest rates. Given the lack of liquidity to meet regulatory obligations, the central bank has had to back down – we’ll see if provisionally – in withdrawing stimuli.

Two, a fiscal policy focused on vulnerable groups and that encourages a change in the energy model seems to be the most appropriate instrument. Inaction entails a risk of the collapse of solvent companies, as Germany recognizes with the announcement of a mega-plan of 200,000 million, giving a Copernican twist to its doctrine of non-intervention. The strategy includes innovations, such as reduced rates for basic gas and electricity consumption. The subsidy disappears after that consumption threshold, encouraging saving. But the plan also contains questionable aid, such as the huge resources that are foreseen for big industry and threaten to distort the single market. That is the context in which our fiscal policy has to navigate, with the advantage of European funds on the condition that they be made available to the objective of a surgical and transformative action. But without margin of error due to the level of imbalances in public accounts.


Inflation moderates slightly for most goods and services that make up the index, except for food. In September, the total CPI increased by 8.9% in year-on-year terms, falling from the double digit of the previous months. Prices now grow less than in the eurozone. The core CPI, which excludes energy and fresh foods, also fell and the number of components with an inflation rate above 6% stabilized at 102 (out of a total of 197), breaking the upward path of the first part of the year. 

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