The first bombardments by Russian troops on the border with Ukraine, on February 24, 2022, completely turned all domestic economies upside down. None of the worries that the Spanish had a year ago remains in their retinas. At that time, all eyes were focused on how they would get out of the coronavirus crisis; of when the restrictions that choked many businesses would end; and of how many tourists would arrive to face the rest of the year. None of that is paramount anymore. Now, the important thing is to know how much the liter of oil has risen when we go to the supermarket; what revision will the letter from the bank contain in which it informs me of the rise in the mortgage; or what is the gas or electricity rate that I must contract to avoid a bill of 400 euros.
The economic war has put a completely different reality on the table than the one experienced a year ago. It has dethroned all the pillars of the expensive economy: it is runaway with prices, with high energy costs, rising interest rates and expensive debt. But, above all, it has impregnated uncertainty in all possible variables, even in those that have not disappointed, such as employment.
The last time that many families had talked about the Euribor in their daily conversations was ten years ago, when the Supreme Court annulled a large part of the land clauses that contained a part of the mortgages. At that time, these credits did not fully benefit from the 0% rates and the negative index. The Euribor has been the economic variable that has taken several vertiginous script twists since the war began: it has gone from -0.4% to the current 3.5%. Four percentage points that are unbalancing even the best possible domestic budget. The increases in the monthly payments exceed in some cases the 300 euros per month. And there are no signs that the escalation will stop.
The European Central Bank (ECB) will raise rates on March 14. And the Euribor will touch 4% in June. With these appearances, citizens are rebuilding their accounts, having to allocate much more money to pay the mortgage than they have been doing up to now. Although there are no magical solutions, those most affected have begun to move. A part of the households, interested in changing to a fixed-rate mortgage. The legislation allows you to process it almost without cost, although you always have to watch the interest rate that is assumed and what the final installment will be to avoid suffocating any family. The Government and the bank have also agreed this year to facilitate mortgage restructuring and alleviate the monthly payment. For now, defaults are contained: delinquency barely reaches 3%.
Deposits
Customer remuneration (%)
The queues at the Bank of Spain to buy debt are the paradigm of the new economic stage. Throughout the month of February, hundreds of citizens have crowded at the doors of the different headquarters of the supervisor (in Madrid, but also in the rest of Spain) to acquire Treasury Bills. A product almost forgotten by investors that the current crisis in Ukraine has put back on the table. Because the interest on these products for one year ahead has come to close to 3%, far from the annual remuneration granted by banks to deposits, of barely 0.64%. The deposits, which for years have been null profitably speaking, continue without starting. Banks prefer to promote other types of products, such as investment funds, despite the fact that Spaniards have already saved more than 1.5 trillion euros in bank deposits.
Inflation
YoY rate (%)
If there is a statistic that has starred in the year, it is inflation and the Consumer Price Index (CPI). Until the end of 2021 they were parked, but little by little the prices began to rise and all the Spaniards began to notice it in their pockets. And the outbreak of the war only made the situation worse. But little by little it was spreading like a raft of oil to food due to the rise in prices of fertilizers, energy, transport and the cereal that was missing from Ukraine. In the end, the underlying rate – more structural and difficult to appease. Spain registered inflation of 0.5% in January 2021. A year later, it climbed to 7.6%, with the core at 3%. And now it is at 5.9% – underlying 7.5% – although it reached a peak in July of 10.8%. You have to go back to the 80s to find similar records.
What is the best possible rate? For an average household, until now oblivious even to the contract it had signed with its electricity or gas company (70% do not know it, according to the CNMC), asking this question has been more than a trauma. Above all, after having to assume monthly receipts of up to 300 or 400 euros, three or four times more than what they were used to paying. If the citizens have noticed anything about the war, it has been in energy. Even with threats of lack of supply, as happened in the first weeks of the conflict in 2022.
Finally, there has been no blackout, like the one Germany and Austria trained for. But, in exchange for that guarantee of supply, being able to turn on the switch has turned out to be expensive, much more expensive. The tension was such in the market that Spain came to propose an intervention (the Iberian exception) not so that prices would fall but, at least, so that they would not rise as much as they did in the rest of Europe in summer. The energy sector has been the sector most intervened by the war: limitations on the sale price, subsidies and even a new tax on profits fallen from heaven. Europe never thought that the public role would reach that level in a market economy.
Against all odds, the labor market, accustomed to quickly becoming infected with any uncertainty, has shown unusual resilience throughout practically all of 2022. In the four months after the Russian invasion, 650,000 jobs were created, allowing Social Security to score a historic record number of contributors, rising above 20.3 million for the first time in history.
However, as of the summer it has been losing steam by losing almost 270,000 affiliates. The growth rate has dropped significantly from the initial 4.5% to the final 1.4%, according to the EPA. The moment of strong recovery seems to have come to an end and now the impact of the war in Ukraine is making itself felt in employment, which shows a sharp slowdown, while the number of unemployed has once again risen above three million . It will be necessary to check if employment continues to maintain this resistance.
Stocks have been one of the most resilient in Europe since the outbreak of the war in Ukraine. That February 24, 2022, the Ibex-35 suffered a fall of almost 3%, below the 4% registered in Germany or France. But the selling panic caused the selective to remain shivering at 8,198 points, its lowest level in a year. Since that day, investors have avoided the uncertainty with a cumulative rise of 12% and it is trading at 9,200 points. And the figure is larger when compared to the lows of March (7,600 points), when the geopolitical tension was total. Despite this rapid recovery, what has radically changed the conflict is investor sentiment. The fact that both risky and safer assets caused heavy losses in 2022 has forced the words “prudence” and “uncertainty” to always be present in any type of decision.
GDP
YoY growth
Spain closed a difficult year with GDP growth of 5.5%. Not only did analysts surprise, but also the government itself, which forecast an increase of 4.4%. But that closure is nothing more than a still photograph. The evolution was not exempt from alarms such as those launched by the Fiscal Authority, which came to predict a recession after the summer. September was called to be apocalyptic. It was not so. Although Spain is one of the few EU countries whose GDP has not yet reached the level prior to the pandemic.
Handicap is also called debt. The economy has managed to reduce the rate on GDP to 113%, five points less than a year ago. But the Treasury has exceeded 1.5 trillion euros of public debt. And Social Security, the 100,000 million.
The first and great concern of citizens as soon as they found out that Putin had begun his particular invasion of Ukraine was to look at the price of fuel. Because since the end of 2021, refueling at a service station was becoming more and more expensive. The sensitivity of the Spanish with gasoline and diesel was shockproof. But nobody could imagine that these costs would skyrocket above two euros per liter, as happened in summer.
Before the summer holidays arrived, prices began to rise like foam. In mid-March of last year, diesel cost 1.5 euros per liter, and gasoline, more than 1.6 euros per liter. The rest of the European partners began to approve aid so that their citizens could face an increasingly heavy fuel bill. In Spain, the Executive reacted a month later, and did so with an initiative that tried to put out the fire from the carrier strike, which just that month almost put the entire economy in jeopardy: aid of 20 euro cents per liter refueled . Without distinction for income and without spending limit.
Overnight, the prices of the pumps saw their costs reduced by those 20 cents, plus the aid that the oil companies themselves put on the table, in the environment of another 10 additional cents per liter. The measure, designed for three months, was extended with the arrival of summer, just when the price of fuel reached its record, above two euros per liter. There were gas stations that did not have the number ‘2’ enabled on their automatic signs. Because gasoline or diesel never reached those limits.
The course of the summer set off the first alarms in the Treasury: fuel spending, far from moderating, kept advancing. And what the State had planned to spend with this aid (some 4,000 million euros until the end of the year) became 6,000 million. For everyone, including foreign tourists who arrived in Spain by car during 2022.
INE, ECB, Bank of Spain, Omie, Infobolsa and Eurostat.