Silicon Valley bank US Bank raised fears of a financial crisis and incidentally generated hope that this announcement will help central banks to relax hikes. However, with the economy — and inflation — remaining soft, BBVA Research rules out that this small earthquake will sway the Federal Reserve or the European Central Bank (ECB) in its fight against rising prices. In its economic forecasts, where Spain’s growth has advanced to 1.6% in 2023, the research service states that the ECB will raise rates to 4%, while H will go to 5.25%.
Although headline inflation in Spain in February was 6% — one-tenth less than expected by the National Institute of Statistics (INE) — core inflation, which excludes energy and food, was 7.6%. “Unfortunately, there are not many changes”, pointed out Georgius Sicilia, chief economist of the BBVA Group: core inflation – the one that central banks pay the most attention to – remains very high and “without signs of a clear slowdown in the Euro zone”. In the United States, inflation fell 6% in February, as published on Tuesday by the Bureau of Labor Statistics. In general, the diagnosis is similar: the underlying inflation does not relax (5.5%) and rises by 0.4% compared to the previous month.
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It is a problem of supply and demand: although the bottles in the market and the price of the industry have improved, exposing the bill on the supply side, use and consumption remain strong, increasing demand and consequently prices. And among all this is a mixed phenomenon such as the return of China: on the one hand, Sicily shows that it is refreshing the giant of Asia, and that its potential production can relieve the pressure of the supply of goods and services. and the prices should be relaxed. In other words, and this alarmingly recent months, China is a big consumer of raw materials, and their demand could push inflation.
With all these factors, the BBVA research service advises that, although prices will gradually fall, a slower control in demand will prevent inflation from reaching the desired levels for the next two years: by 2023 Average inflation is to be expected. 4.8% (compared to 8.4% in 2022) in the euro area, and 4.1% in the US. Next year, the rate will be adjusted to 2.3% and 2.7% respectively, a little closer to the 2% target. Prices are expected to remain higher and longer “due to the persistence of the core and the dynamics of consumption,” they conclude. And with them it is important.
From the research ministry of BBVA, they praise the strength of the economy in this context: “It is worth being happy because of the strength that we have shown in the economy in the face of the user,” Sicilia affirmed. While three months ago they showed a recession in the European area, BBVA Research predicts growth this year of 0.6%. For Spain, he expects growth of 1.6% this year, four tenths of a percent more, although he lowers his expectations for next year from 3.4% to 2.6%.
In addition to good technical balance, one of the main factors of resistance, pointing out the person in charge of economic analysis, Rafael Doménech, is the strength of work. According to data from the research service, after the break at the end of 2022, affiliation to Social Security could progress to a rate of 0.8% at the beginning of the year. Labor reform, which they advocate, will reduce the volatility of labor by increasing the cost of layoffs and reducing temporary employment, without reducing weekly hours. This year, BBVA Research expects unemployment to be 12.6%, which will drop to 11.5% in 2024.
However, BBVA’s economists point to two elements that could have a negative impact on job creation: the increase in the minimum wage approved at the beginning of January and the pension reform proposed by the executive last week. Regarding the latter, Doménech points out that the whole adjustment system is based on an increase in contributions, which will have a negative effect on the labor market: “We estimate that for each percentage point of GDP growth in contributions, employment is reduced to another point and gross. “I don’t know if it is suitable,” Sicilia criticized.
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