Monday, May 29

The risk that fiscal stimuli and European aid are wasted is very high. We have already experienced it with the Juncker Plan

Economic growth of Spain. Forecasts speak of growth of 4.5% in 2021 while the government maintained a growth of 7% and for this year 2022 the estimates also point to a gap between the forecast of the executive and that of the institutions. Which one do you pay attention to?

We cannot pay attention to the government’s estimates because the history of lowering expectations is brutal. In March 2020, it maintained a GDP increase of 1.6% when the consensus is at 6-7%, it has always lagged behind reality and right now the estimates, already with the latest data from the AiReF, are at 5, 3% for 2021 and the Bank of Spain is also below 5%. The big problem with the government’s estimates is that they have been revised downwards – they started above 9%, now it is 6.5% and they will lower them again – and budgets and investments are based on expectations .

2022 begins with less momentum and a double-edged sword. On the one hand, because of the hope that the last push needed for the economy to take off will come from European funds. On the other hand, because of the fear that Spain will not apply the necessary structural reforms to receive that money or, worse, that it will receive it but waste it. This month the Government expects a second disbursement of European funds: 10,000 million euros pending receipt (they should have been received by the end of 2021), and which arrive after Spain received a first advance of 9,000 million in 2021. What should be the destination of these aids?

Everyone can understand that the productive fabric of Spain needs this aid to carry out transformative investments, but not even 20% of that money will go to investments with real economic profitability and that is if it ends up going to investments. The risk that fiscal stimuli are wasted and this type of aid is not that it is high, it is very high because we have already experienced it with the Juncker Plan, the 2009 growth plan, Plan E. It is not a matter of European aid arriving, but for what are used and the demonstration is that these huge infrastructure plans have a zero or negative multiplier effect. And it is not a problem exclusive to Spain, we also saw it in Japan in the ’90s, but here the poor execution is added.

What impact will they have on GDP? The government spoke of a 2% increase in GDP.

The government intends that the potential growth of the Spanish economy, which moves at 3%, show a trend growth of 5% per year. The probability of this happening is zero. It is impossible because the history of all stimulus plans shows that the (Keynesian) multiplier is very low. According to the government’s plans, for each euro invested, an additional potential growth of 3-4 euros would have to be generated. I see difficult. .

We have just started the year and we already have tax news that affects consumers and the self-employed. Monthly Social Security contributions rise, a measure that will affect 1.8 million self-employed. And it does not stop there: the Government is preparing an ambitious tax reform that it could approve between 2022 and 2023, and which would include setting the minimum rate of Corporate Tax at 15%, in addition to increases in income tax or diesel, and Tax reductions for SMEs or VAT on feminine hygiene products. What do you think of these measures?

Not to large incomes, to any average income. It seems to me that it is rowing in the opposite direction to what other countries around us are doing, such as Italy, Portugal…etc. because the negative effect on the economy of high inflation and high taxes reduces potential growth. It is not surprising that Spanish families have been the ones that have shown the least impulse in consumption. Neither generates benefits in Spain’s fiscal problem because if we were to believe the revenue estimates with these measures, the Spanish government will leave the largest structural deficit in the entire eurozone in 2023, which is a deficit that is created whether you grow or not. The debt is not going to be reduced, in fact these days we have seen how Spain’s debt has increased to 122% of GDP despite a government that boasts of having achieved record tax revenues, that is, it spends more than it it is entered in periods of recovery and fall.

The other day, talking to Juan Ramón Rallo, he spoke to us about the need to improve productivity, which was one of the challenges. And how is this done?

If from the action of the government the high productivity sectors are fiscally penalized and the low productivity areas are subsidized, it does not increase. That does not mean that you do not have to support those with low productivity, but if you enter a crisis and what you put the biggest fiscal blow to is those who survive and become stronger during the crisis, you do not encourage productivity. All economists agree that the great problem in Spain is productivity, but if you analyze the difference between the productivity of the public and private sectors, the difference between the private sector and its European partners is not noticeable, but in the public sector it is important. That means there is a very clear resource allocation problem. After all, a government is like a huge asset manager and if you allocate resources constantly taking away from high productivity sectors to increase current spending, increase unproductive subsidies and increase everything that does not generate potential growth, in the end it goes wrong. If the Spanish economy had carried out the increase in productivity that tourism, construction or the livestock-farming sector have had in all sectors, Spain would not have had any productivity problems.

Next July, the European Commission will list Spain’s recovery plan. If the Government wants to receive the payment of the second tranche of European aid, which amounts to no less than 12,000 million euros, it will have to prove that it has fulfilled a series of milestones and reforms agreed with Brussels, such as the labor reform or that of the pensions. Where do you think the government’s next steps should go?

We have to separate the receipt of funds because the idea that the EU is going to be like a kind of jiminy cricket doesn’t work and never has. The EU never works preventively, it didn’t with Greece or Portugal… the EU gives you a series of tools, including European funds, and if you waste them, it’s a country problem and that’s why we have to worry about that part. I care what the authorities are going to do with the money and not what the EU says. I just have to go to the document to run the other way. 12 jobs will be created for every million invested. That, anyone who has a company will say is ridiculous. In addition, the PERTEs go to companies that do not need any type of money since they have been financed at negative or zero rates during the crisis and they can invest in whatever they want and I am concerned that projects that were not profitable and that had been discarded in previous investment plans at a time when there was liquidity, low rates and investor demand. And that, again, is not a problem exclusively for Spain.

We are at a time when the sale of real estate is skyrocketing due to the increase in savings during the pandemic. Experts rule out that we are facing a new real estate bubble, at least for now. What would be the data that would make us be alert?

The confirmation bias tends to affect us all, both upwards and downwards, and being a sector in which transparency in data has a long lag, despite transparency, it is very tendential and momentum. The big problem that I see right now is that the rise in prices does not come from citizens buying more, but from people with a huge disposable income buying more housing, and this is evident in the number of homes that are bought without mortgages. , which is at levels not seen in a long time. This means that the risk of a real estate bubble is less, but it does not mean that it is non-existent. The risk of a bubble is that rates are rising, the granting of credit is falling, the capacity of the marginal buyer is limited and therefore it is normal that there is a correction in part of the real estate sector.

In the presentation of the perspectives of Tressis, in which he is the chief economist, he spoke of the sectors most prepared for this context being: industry, technology (in segments with higher added value) and banks, although positive signs are also showing in the sector pharmacist. any in Spain?

We are underweight in the Spanish stock market, due to different factors but fundamentally due to lack of differentiation. They have more risk in their domestic markets and in the markets in which they are present, with the recovery of Latam we are quite cautious. In general, we don’t like exposure to Spain and Latam, but there are companies that are leaders and profitable and others that have differentiating factors, but in general the problem of the Spanish stock market is the same as that of the Italian or French stock markets.