Josep Bertrán, The Director of Finance Programs at EAE contributed to drafting the economic forecast report published by the auditing firm PwC, along with experts including Guillermo de la Dehesa (Santa Lucía Vida y Pensiones), José A. Herce (Analistas Financieros Internacionales) and Rafael Doménech (BBVA), among others. Entitled Economic Outlook and coordinated by Alfonso López from PwC and the economist Manuel Portela, the report includes a special-focus article on the latent debt risk and the real estate bubble.
The report presents the results of a survey of 34 questions sent to 444 professionals from a range of economic sectors, including Businesspeople and Executives (46%), Business and Professional Associations (16%) and Universities and Economic Research Centres (38%).
Forecasts for the world economy
United States headed the list of the countries in the best economic situation around the world, followed by the European Union, Japan and China. In terms of growth forecasts for June 2019, China and Japan feature strongly in the forecasts of the people surveyed, followed by the United States, the European Union and the rest of the world. Although the professionals were in agreement with their forecasts that that the situation will remain stable, there are clear forecasts of a downturn in the European Union for the middle of next year.
With respect to the risks affecting the global economic scene in the short term, the professionals surveyed highlighted three as being the most important. The first of these was the risks arising from the protectionist tensions of the new international economic order (68.8%), followed by Brexit (44%) and, in third place, the risks related to trade deficits and public debt (42%).
Forecasts for the Spanish economy
At a national level, the outlook for the fourth quarter of 2018 is positive, according to most of the professionals surveyed (82.3%), with optimistic forecasts for the upcoming months, although this is set to be followed by a downturn of around 40% in 2019.
According to the National Accounts data published by the Spanish Statistical Office (INE), the year-on-year GDP grew by a rate of 2.5% in the second quarter of 2018, In the opinion of the professionals surveyed, the evolution of GDP will remain at 67.7%, although it is set to worsen in 2019. The average growth rate of GDP for 2018 to 2019 will settle at around 2.5% to 3% as far as the large majority of the people surveyed are concerned, who predict a drop (less than 2.5%) with respect to 2019. The reason for the low growth of GDP is fundamentally due, in the opinion of most of the professionals surveyed (77.7%), to the fact that expected demands is not enough to increase production.
With respect to the economic and financial situation of households, the survey classifies it as regular, even worse than last year. The outlook remains the same for the next quarter. Stability in terms of consumption and the negligible changes in the demand for housing contribute towards these forecasts to a large extent.
The interest rate of the ECB, at 0% and 0.05% in June 2019, will reach 0.25% in December 2019. Meanwhile, the exchange rate of the euro with respect to the US dollar in June 2018 (1:$1.16) will remain between 1.1 and 1.2 in June 2019, in the opinion of 69.7% of the professionals surveyed, with few variations by the end of next year. In terms of changes in the RPI between June and December 2019, most of those surveyed estimate somewhere in the range of 2% to 2.5%.
With respect to exports of national companies, 79.3% of the professionals surveyed predict positive figures and state that the forecast will remain stable throughout 2019. When asked about the evolution of production investment, exports and job creation, the statistic suggest that production investment will remain steady 2019, as will exports. In terms of job creation, they predict that the situation will remain stable (41.6%) or improve slightly (47.9%)
In relation to the Spanish economy and the pricing policy, they foresee stability with respect to prices (77.4%) and a slight increase in demand for products and service (33.3%) and salary costs (33.3%), as well as a rise in price competition (68.4%).
Special focus: the latent debt risk and the real estate bubble
Excessive public and private debt in the Spanish economy and the slump in the dynamic growth of the national economy is the focus of this report by PwC. 57.8% of the professionals surveyed share a concern for the level of indebtedness in the national economy and consider it a problem that threatens the future of the domestic economy, in view of issues such as excessive debt, the high risk to the sustainability of the pension system, low productivity, the high unemployment rate, the lack of investment in R&D and shortcomings in the education system, among others. More than 80% of the professionals surveyed are concerned in this respect because it makes the economy more vulnerable in the face of situations such as a rise in interest rates or a new recession.
With respect to compliance with the measures set out in the Financial Stability Plan 2018-2021, most of the professionals surveyed (86.1%) do not believe that the forecasts will be met and that, in 2021, the level of debt will be far above 90%. The improvement plans for reducing the amount of public debt, as far as 92.6% of the people surveyed are concerned, should focus on the growth of the economy, rather than aspects included in the Budget, such as tax improvements, pensions and public sector pay rises. In terms of achieving the objective, these measures will have the opposite effect.
The professionals surveyed emphasized the need to rationalize spending (53.7%) to fight excessive public debt, as well as monitoring household spending closely and their level of indebtedness (57%). 62.7% of the people surveyed agree that it is necessary to delay the rise in interest rates in Spain because, if it rose right now, it would have an undesirable effect on the recovery of the economy, which remains weak.
With respect to the housing market, 88.5% of the professionals surveyed think that, with the Euribor at its lowest point, the existence of very cheap fixed-rate mortgage loans, the growth of tourism rental platforms and urban gentrification have incentivized the attempted rise in housing prices in Spain. Nevertheless, only 36.7% agree that further regulation of the national real estate market is required. More than half of the professionals surveyed acknowledge that there is a certain lack of definition in terms of the regional urban development objectives and local urbanization plans.
