BBVA Research’s chief economist for Spain, Miguel Cardoso, indicated this morning in Murcia that “there is a risk” that the price of gasoline will rise to 3 euros per liter in the coming months. “It’s not a base case scenario that we’re looking at right now, but I wouldn’t rule it out.” He indicated that to reach that price level, a barrel of oil would have to become 50% more expensive. “We assume that there will be expensive fuels,” he added. In this regard, he recalled that there are already processes under way to replace the energy supply in the EU countries,
According to the forecasts offered by BBVA Research, the Murcian economy could grow by 4.1% in 2022 and 3.2% in 2023. With this, next year Murcia’s GDP could exceed the pre-crisis level by almost 4%, so the community would be the second Spanish region with the highest level of recovery, after Extremadura. Cardoso indicated that this fact is due to the fact that the Murcian economy suffered less than that of other communities in 2020, mainly due to the agri-food sector and the lesser weight of its tourism.
Regarding fuels and the impact of the war in Ukraine, Cardoso indicated that if the situation worsens and the supply is restricted, the economic forecasts will receive a negative impact. He stressed that the Region of Murcia will not have energy supply problems because there is no dependency on Russia, but there may be more expensive energy.
24,500 more jobs in three years
The report indicates that the reduction of the health risk and the use of part of the savings accumulated during the pandemic will allow a strong advance in tourism that year and the following, This, together with the acceleration in the execution of the European funds Next Generation EU (NGEU ), will favor the recovery of the Murcian economy. If these forecasts are fulfilled, Murcia would create, on average, some 24,500 new jobs between 2021 and 2023, which would allow the unemployment rate to be reduced to 10.4% the following year. In any case, the invasion of Ukraine and the consequences of the sanctions on the Russian economy, as well as the increase in the cost of energy will have a negative effect on activity. The final impact will depend on the measures taken and how long the conflict lasts. The importance of the risks associated with higher inflation also increases, indicates the report presented by David Conde, director of BBVA’s Eastern Territory.
“The boost from tourism, the acceleration of spending by Murcian households and companies, as well as the growth of exports and the impact of public policies would have supported this recovery,” he says.
According to BBVA Research, in the first quarter of 2022, all economic activity indicators show growth compared to the levels observed at the beginning of 2021, which was marked by restrictions on mobility and activity as a result of the pandemic. “This evolution would be explained by the progressive recovery of tourist trips, favored by the improvement in health indicators and by the use of the savings accumulated during confinement.”
It specifies that the lifting of restrictions at the beginning of the year favors the progress of the tourism sector, and in particular domestic tourism, which would have boosted consumption. Thus, according to the latest available data, in Murcia the expenditure made with a BBVA credit or debit card, or at a BBVA POS, by residents in Spain remains around 50% above that made in 2019, which means a greater advance than that of the whole of Spain. By sectors, face-to-face card spending in the leisure, restaurant and transport sectors stands out, which in May exceeded the value of the same month of 2019 by more than 50%. In addition, card spending by foreigners would have exceeded the level pre-crisis by 15%.
Likewise, Murcian exports of goods maintain their dynamism, with growth in the first quarter of 20% year-on-year. The increase in energy and semi-manufactured sales abroad would explain this evolution. Home sales would also have grown from January to April to exceed 15% those made in the same period of 2021.
For its part, the Murcian labor market would have already recovered the level of affiliation to Social Security prior to the crisis. Specifically, the data up to May show a greater dynamism of employment in the Urban Area of Murcia while a slight slowdown is observed in the Costa Cálida. In addition, changes in labor legislation are making it possible to replace part of the temporary contracts with indefinite or discontinuous fixed contracts, which could encourage the improvement of human capital.
Impact of the war in Ukraine
Growth will remain high over the next two years, although the sanctions imposed on the Russian economy, the rise in energy and raw material prices and the acceleration of inflation will condition the progress of regional activity.
In addition, in Murcia the impact of the invasion of Ukraine could be higher than in other Spanish regions. This is due to various factors, according to the report. On the one hand, the greater weight in the regional GDP of imports of energy, raw materials and semi-manufactured products, whose international markets are being more affected by the conflict. At this point, the relevance of fertilizers and the agri-food sector stands out, highly affected by fluctuations in the prices of raw materials.
On the other hand, the Murcian economy is more intensive in energy consumption due to sectoral specialization, so high fuel and energy costs limit its recovery more than in other Spanish regions.
In this context, the BBVA Studies Service forecasts that Murcia’s GDP will grow by 4.1% in 2022 and 3.2% in 2023. With this, at the end of next year, Murcia’s GDP could exceed by almost one 4% pre-crisis level, a greater recovery than that of Spain as a whole. If these forecasts are fulfilled, the Murcian economy would create, on average, some 24,500 new jobs between 2021 and 2023, which would allow the unemployment rate to be reduced to 10.4%.
Inflation and conflicts
The recovery scenario forecast for the coming quarters could be affected by rising inflation, due in part to the high cost of energy. Specifically, in April headline inflation in Murcia stood at 8.2% and core inflation at 4.4%, in line with Spain.
Likewise, although the direct impact of the fall in demand on the economies of Russia and Ukraine is small, the rise in fuel and raw material prices further limits the recovery of industrial areas and poses a challenge to their competitiveness. It is estimated that the increase in the price of oil could subtract 1.7 percentage points from the average annual growth of Murcia’s GDP during these two years.
In addition, uncertainty remains regarding the investments associated with the execution of the Next Generation Funds, said Miguel Cardoso. In particular, the efficient use of them for transformative projects, and the deadlines in which these projects are executed, are essential to achieve an inclusive recovery that does not dilate over time. In Murcia, the distribution of funds to programs aimed at digitization, education and professional training has been somewhat higher than in Spain as a whole, while in programs to promote the green transition of the region it has been lower. Continuing to make progress in improving human capital is key, particularly in the current context of tensions in the labor market in which companies are unable to fill all their vacancies.
On the other hand, the risks due to COVID-19 have been reduced, but they still persist and it cannot be ruled out that new strains will emerge, which could negatively affect, and especially tourist areas, as seen in previous waves, concludes the study
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