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The Bank of Spain says that companies have adjusted salaries but not their margins

The Agency recognizes that the employment created is better, calls for an automatic adjustment mechanism of pensions and recalls that the fiscal adjustment should continue

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The Bank of Spain says that companies have adjusted salaries but not their margins

Luis Linde leaves post of Governor on June 8th. Although it is little given to strict statements, it leaves a last annual report truffled of notices to navigators. The document stresses that " reforms put in place during recession helped to lay foundations of recovery", that this has been "intensive in employment" and that has been managed to restore competitiveness with exterior, heel of Achilles that devoted himself to Spain To crisis. However, it also explains that part of this recovery is due to monetary and fiscal stimulus. And that those tail winds that have propelled Spanish economy will not always remain re. You have to start preparing for moment party touches its end.

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The first chapter of annual report is always titled basic features of Spanish economy. But this time bank has called it very differently: limits to demand policies and challenges for future. What translated Christian means that monetary and fiscal expansion will not continue to give much more. Sooner or later interest rates will rise. Oil can be made more expensive than it already is. The growth of export markets can even be halted. At some point, government will have to continue to lower debt and ensure sustainability of pensions. As doping is disappearing, economy will tend towards much slower growth, with very low productivity due to population ageing, low training, scarce technological investment or high number of temporary and Standing. And that will be combined into an explosive cocktail with a still very high public and foreign debt and public spending that will be shot by demographics. In or words, Spanish economy still presents "a very notable degree of vulnerability to external disturbances", recalls organism. Despite sense of exhaustion with reforms, Linde has a phrase in letter that Rubrica preceded report and serves as a farewell to its six-year term: "Progress is undoubted, but effort that Spanish society must make to To consolidate and improve what is achieved is also significant. "

Pensions

"Population ageing poses a first-order challenge for sustainability of public finances," Bank of Spain argues. According to estimates from European Commission, public expenditure on ageing will rise to 2050 in some 3.5 points of GDP, almost 40 billion calculated with current GDP. As for pension system, according to Bank of Spain reforms adopted would achieve in a favorable economic context that hole is reduced. However, if no additional income is sought, correction would be produced only by a cut of public pension from average wage, which in jargon is called substitution rate. This would fall by about 20 points, from environment from 60% to 40% of average salary, according to figures of community executive. In or words, retirees would have a lower purchasing capacity by doubling number but maintaining pension spending on GDP.

"For future, key is to delimit, according to social preferences, replacement rates of our pension system that are intended to ensure, so that income is adapted to ensure that sustainability is guaranteed. From available analyses it can be concluded that maintenance of current replacement rates, which are high in international comparison, would require very significant increases in system revenues, "he says. Or what is same, would have to raise taxes too much to maintain generosity today. For this reason, and just when inflation benefits have been re-raised, entity recommends that in any case "an automatic adjustment mechanism is maintained that guarantees sustainability".

In addition, bank argues that "demographic trends will have negative effects on potential growth of economy," which depress productivity and number of working-age people. Hence, advocate for "greater participation of older groups in labour market", and policies that encourage family reconciliation, birth and immigration.

The labor market

The or burden for productivity is in labour market, very marked by high temporality, low formation and high number of unemployed who have been too long without occupation. "The quality of jobs created is, in many cases, better," recognizes agency. The report stresses that rate of temporality remains highest in euro countries, that "re is evidence of a shorter duration of recent temporary contracts" and that, consequently, re is a greater turnover of workers. In se circumstances, it seems difficult for an employee to gain experience and refore productivity in company. Combined with a low level of education and a high percentage of involuntary part-time contracts, "all this has led to a reduction in number of hours actually worked, with consequences not only in average productivity, but also in inequality Of labor income, "he concludes. Even if inequality is improving with job creation, it has deteriorated greatly with crisis, says Bank of Spain.

On or hand, study department explains that labour costs have practically corrected all losses of competitiveness accumulated since creation of single European currency. Such a process has been essential to restore competitiveness and bring about recovery. However, same is not case with prices and results of companies. "Competitiveness gains in face of euro area have fallen more on wage adjustment than on business margins," he stresses. And that denotes "some lack of competition in some sectors."

In midst of crisis, in a context of strong financial restraint it seemed logical for companies to increase ir liquidity by cutting labour costs. It was about getting more leeway to be able to finance and ensure survival. But now se larger margins are being maintained even when financing costs have plummeted. The organism does not observe logical margin compression of a recovery, when cake becomes bigger and normal thing is that companies compete more for that cake. As business opportunities arise, new businesses are not incorporated after many have been destroyed during crisis. "The degree of concentration, approximated by market share of four largest companies in each sector, increased by 10% during crisis and reduced only 0.1% during subsequent recovery phase," he says. In view of bank, barriers to greater competition should be examined.

Taxes and paralysis in reforms

Despite such a diagnosis, "initiatives to solve structural problems of economy are scarce," he laments in his role as Pepito Grillo. Fiscal adjustment is unfinished and "must proceed in a way that is compatible with economic growth," gaining in efficiencies and rearranging " tax basket" by going up those where it sees more margin like VAT, specials and environmental. "Among outstanding challenges is a preeminent place to correct imbalance of public accounts, an urgent task," says Governor Linde.

In short, Bank of Spain notes serious problem of "political fragmentation" and asks for height of sight: "Many of outstanding tasks of Spanish economy require plans of action in medium and long term that exceed usual political cycle and, so They are demanding a start-up without delay and a broad and lasting political commitment around m. "

Uncertainty in Catalonia

The Bank of Spain reanalyzes Catalan situation and, again, alert: "The uncertainty that persists about future of current legislature, after autonomic elections last December, could affect process of normalization of situation Economic in Catalonia ".

The supervisor detects that community suffered a slowdown greater than rest of regions at end of last year, especially as it is clear from data of affiliation to Social security, commerce, tourist overnights, residential investment and Business. In whole of Spain, escalation of conflict in October only had a transitory economic injury. But it can still have a greater impact on Catalan and Spanish economy, damaging confidence in consumption, credit and investment. "It continues to constitute one of main elements of domestic risk", Remacha.

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