A few days ago, the INE published the General Index of Industrial Production, corresponding to the month of May. In it was shown an increase of 6.5% In relation to the same year, this rate is 7.1 points higher than that of April and the highest since June 2021.
In other words, industrial production rose again after falling 0.6% in April. The one of the consumer goods durable it was the one that grew the most in May, registering a year-on-year rise of 11.3%. Adjusted for seasonal and calendar effects, industrial production increased by 3.8% compared to May 2021. Why these positive results? What consequences can they have on the national economy? To answer these and other questions, we talked to José Manuel Corrales, professor at the Department of Economics and Business at Universidad Europea.
MuyPymes: What is your reading of the latest data from the INE, related to the increase in industrial production?
Jose Manuel Corrales: The latest data from the INE on industrial production indicate that there is some green shoots hopeful in the tourist activity, in the industry and especially in the Spanish labor market.
MuyPymes: Do you think that this increase also translates into profit growth for companies?
Jose Manuel Corrales: This increase will hardly translate into a general growth in profits for all companies, since we are facing a scenario close to stagflation, although there will be some companies that, due to their high specialization or high productivity, can improve their performance.
Business profit in Spain is still 6.8% below the level of 2019, before the coronavirus crisis. The data from the Tax Agency shows that, although in 2021 revenues recovered and profits grew by 32% compared to 2020, they are still far from the values prior to the Covid pandemic.
MuyPymes: The production of durable consumer goods is the sector that has grown the most in May. What is the reason for these positive results?
Jose Manuel Corrales: The production of durable consumer goods has grown as an escape route for consolidated savings during the months of the pandemic. There is also a considerable improvement in recent months in the labor market.
The number of people registered in the Offices of the State Public Employment Service (SEPE) At the end of June, it fell by 42,409 in relation to the previous month. Thus, registered unemployment stood at 2,880,582 people and remains at the lowest levels since October 2008, at the start of the financial crisis. Compared to June 2021, unemployment has decreased by 733,757 people. Stable contracting is consolidated and the total number of contracts registered during the month of June was 1,768,988. 783,595 employment contracts of an indefinite nature have been registered, which represent practically one out of every two new contracts (44.3%) in a month marked so far by temporary contracts. Multiply by five the average number of permanent contracts this month.
MuyPymes: What are the consequences for the national economy?
Jose Manuel Corrales: Despite the positive data in industry and in the job market, the clouds are still there and economic stagnation is evident at every step. This is not to alarm, but it is clear that in addition to the warlike tensions in Ukraine we are witnessing a very delicate situation in international economic and trade relations.
The economic growth forecast for Spain in 2022 it is lowered to 4.3% and for the next ones it is 3.5% in 2023; 2.4% by 2024 and 1.8% by 2025. Inflation will take months to disappear, with a real risk of becoming chronic. Interest rate hikes can lead to less investment and an increase in public and private debt. The Russian invasion of Ukraine is having important economic and social effects that are affecting all countries. The forecasts of international organizations are not encouraging, especially if the war in Ukraine intensifies and lengthens over time.
The prospects for the Spanish economy are no longer so favorable, due to the context of enormous uncertainty, and the convulsive times of hybrid war, climate change and pandemic that we are experiencing. The serious risks we are facing allow us to glimpse that there will not be a full recovery of pre-pandemic levels until at least the end of 2023.
Spain in the first quarter of 2022, has already shown a growth of the Gross Domestic Product of 0.3%, when the forecasts pointed to a growth of 1%. This almost flat growth of the economy, which also affects the European Union as a whole (Germany grew by 0.2%, France stagnated and Italy fell by 0.2%) should be cause for concern. It is true that the growth of the first quarter of 2022 does not reflect the good Easter, which has been positive for the service and food sector in Spain.
MuyPymes: Will inflation drop in the short term?
Jose Manuel Corrales: Inflation will remain high for several quarters, probably throughout the year. Gasoline, electricity and other raw materials have already reached record highs in these months of war, with waves of price increases, which means a general increase in the cost of living.
This situation is going to be a drag on the economic recovery and Europe’s GDP growth forecasts are already highly compromised, with a clear downward trend. The international economy is suffering from a kind of hybrid war whose outcome is not defined.
MuyPymes: There is much talk of a recession for the coming months, what should small and medium-sized companies expect in 2023?
Jose Manuel Corrales: No one can deny that next winter will be very hard and difficult, with possible rationing in home heating and in European industrial production. And although in the short term there will be no recession in Spain, it will be difficult for us to avoid economic stagnation.
The stagflation is already here. The undesired scenario of high inflation and economic stagnation is already a reality throughout Europe. And although we will have a fairly positive summer for the services sector in Spain, mainly due to the significant hotel occupancy and the high number of foreign and national tourists who will enjoy their vacations in the national territory, autumn is expected to be very gray and winter may be completely black, especially if the feared cutoff of Russian gas and oil supplies to Germany and other European countries materializes.
