BBVA Research considers that the crisis caused by the “strange and negligent” management of Silicon Valley Bank (SVB) “will be digested” without causing “a structural problem” or significantly altering the policies of central banks in the fight against inflation especially the ECB.
“This crisis does not show any credit problems on the balance sheet, it is of a very different nature from the usual ones in the banking sector, which have to do with non-payments and arrears,” said the director of BBVA Research and chief economist of the BBVA Group today. , Jorge Sicily. This “niche bank” had “few loans and very large deposits”, which placed it in “a negative position against rate hikes, both in assets and liabilities”. Conventional banks, he says, tend to pay for this risk “every day.”
Sicilia made these considerations during the presentation of the report on the situation in Spain, in which BBVA Research raises the growth forecasts for the country in 2023, predicts that inflation will close the year at 3.9% and is critical of the pension reform recently proposed by the Government.
The director of the study center assures that “the episode in the financial markets due to the SVB crisis is not going to be systemic.” However, it can influence the way in which central banks will approach the next rate increases, as can already be seen in the reaction of the markets, which “have stopped discounting increases” in the price of money. “Once a panic sets in, you have to stop it because there are dynamics that go beyond it,” he says.
BBVA Research forecasts that the ECB will raise interest rates this year to 4% and that the Federal Reserve will do so to 5.25%. He assumes that this Thursday the European institution will apply the planned increase of 50 basis points, up to 3.5%, but he does consider that, from now on and after the SVG crisis, it is possible that “they will stop promising new rises” and the following ones are addressed “of 25 by 25 basis points”.
“Once interest rates are reached in which the authorities feel more or less comfortable, it is foreseeable that the increases will be more gradual and the central banks will take more time to assess how their monetary policy is transmitted to the economy “he points out.
The study center has raised its GDP growth forecasts for Spain for this year by four tenths, up to 1.6%, thanks to the “resilience of the economy in the face of the rise in energy prices” and aspects such as ” stored savings and public policies”.
On the other hand, the forecast for 2024 is riddled with “doubts” and BBVA Research has revised it downwards, from 3.4% to 2.6%, in a context of “more interest rises”, which could subtract nearly one point of GDP to the country’s growth in 2023 and 2024.
The forecast is that inflation will close 2023 at 3.9% and 2024 at 2.8%, while underlying inflation will be between 5% and 6% by the end of this year to end up converging with conventional inflation at the next exercise. The unemployment rate will go from 12.6% in 2023 to 11.5% in 2024.
“The main risk is that inflation takes time to come under control and ends up leading to higher interest rates,” he warns. “Core inflation remains very high, with no signs of easing in the euro zone,” she adds.
“The worst seems to be behind us,” says Rafael Doménech, head of Economic Analysis at BBVA Research. As he says, the industry is resisting “better than expected” encouraged in part by the arrival of European funds. “It is estimated that some 13,000 million euros could have reached the real economy related to the Next Generation funds,” he points out.
Those responsible for BBVA are critical of the pension reform planted by the Government. According to Doménech, “it does not guarantee the sustainability of the pension system in the long term in the absence of new measures that basically involve adopting additional decisions on income or spending cuts.”
He also criticizes the new intergenerational solidarity rate for the highest contributions, which “supposes increasing taxes on labor and employment”, which can have “distorting effects on economic activity, GDP and employment”.
Sicilia indicates that “in Spain the taxes for work are higher than those in Europe” and that “the new adjustment mechanism will further increase the cost of the labor factor.” “We are loading our backpack with something that is not adjusted to the situation of the Spanish market,” she says.
BBVA Research calculates that each point of increase in social contributions in terms of GDP is equivalent to one point less in employment, so that the reform, after its gradual application over the next five years, could end up having an impact “of the order 200,000 jobs”. It also estimates that the increase in the interprofessional minimum wage will stop creating between 10,000 and 20,000 jobs.
