surinenglish

the euro zone

Open to revision

Last week saw Óscar Arce, director of economics at the Bank of Spain, give a press conference in which he explained some minuscule reductions in his growth forecasts for next year and 2021. In doing so, Arce specified domestic and external threats to the Spanish economy in the medium-term future, chief among them a hard Brexit and the apparently insoluble deadlock between Spain's leading politicians.

Arce is an accomplished economist and it's obvious that a hard Brexit poses certain risks to the Spanish economy (as well as to the economies of the UK and the EU as a whole). But given how complicated things became this week, after the UK's Supreme Court ruled against Boris Johnson's prorogation of parliament, one wonders how he can be so specific about the potential damage to Spain: Acre puts the cumulative contraction over a five-year period at precisely 0.7%. No-one, not even the dithering, posturing politicians in charge of managing Britain's departure from the EU, know what kind of Brexit will play out, let alone the economic impact it will have. We should therefore regard such predictions as open to substantial revision, at the very least.

Turning to domestic issues, Arce said that Spain's political uncertainty, specifically in relation to the "course of main economic policies", is a potential risk to growth over the next few years. The supposed "problem" here is that, following an inconclusive general election on April 28th, the country's politicians have been unable to form a government - a state of affairs that's unlikely to be changed by a repeat vote due on November 10th. Indeed, Spain hasn't had a stable majority government since the end of 2015.

So far, though, the macroeconomic impact of this uncertainty has been non-existent (and is likely to continue to be). Spain's economy has grown consistently since it officially exited recession at the end of 2013, and at a faster pace than EU powerhouses such as France and Germany. The country's budget deficit fell below the EU limit of 3% for the first time in a decade during Pedro Sánchez's stint as prime minister - a period during which his minority government was unable to make major changes to existing economic policy. In much the same way, when Belgium cruised along for 541 days without a functioning administration between 2010 and 2011, its GDP continued to grow at a steady rate.

Unsupervised macroeconomic expansion aside, it's true that Spain needs a majority government to address other issues. It especially requires one committed to reducing unemployment, which at 14% continues to be second-highest in the EU after Greece.

In the meantime, given our exceptionally complicated times, it's worth remembering that detailed predictions from economists such as Arce are never set in stone.