Article written by José Alberto León Alonso, and published in the BINTER magazine in January 2014.
With a fall in GDP of around 1.3%, a destruction of around 200,000 jobs during the year and 5.9 million unemployed, 2013 will be remembered as the year of exit from the recession and the turning point for the exit from the crisis.
After a year in 2012 in which Spain was close to the abyss and ruin, 2013 has been a calmer year from a macroeconomic point of view, with the risk premium falling to 220 basis points and foreign investors returning in droves to our country. However, serious structural problems persist, such as high unemployment and deficit rates, and an accumulated public debt that will exceed 100% of our GDP by the end of the year.
What can we expect from the year 2014? It is usually a recurring exercise of some economic magazines and business banks in the English-speaking world to dare to predict a series of specific events for the coming year and contrast the success obtained the following year. Last year I allowed myself to imitate them with seven correct predictions out of a total of ten, which encourages me to try to refine them even more in this article, although the degree of uncertainty in the economic situation is still very high. So these are my ten economic predictions for 2014:
1. Spain's GDP will grow above 1% in 2014. The Spanish economy began a timid growth in the third quarter of the year that will be consolidated throughout 2014. Although all study services, the Government itself and international organizations predict GDP growth between 0.3% and 1%, our forecasts are more optimistic as we predict growth greater than 1%, with consumption and employment figures recovering with greater vigor than expected.
2. The Canary Islands will grow by 1.5% or more during 2014. The GDP growth of the Canary Islands will be higher than the national one due to the push of the tourism sector, which promises to reach historical figures in terms of the number of visitors.
3. The Spanish risk premium will be less than 150 points. As a result of this economic improvement, the risk premium will be reduced at some point in 2014 to below 150 basis points, from around 220 b.p. current.
4. The total number of tourists in the Canary Islands will exceed 12.5 million. In 2014, a new record for total tourists will be established, as both foreign and national tourists will grow. The former will do so due to the political instability in the Maghreb, and the national ones due to economic improvement. In 2013 the total number of tourists will be around 12 million visitors.
5. The number of unemployed in Spain will be reduced to below 5.6 million, from more than 5.9 million currently unemployed. Both the foreign sector and domestic consumption will pull in the same direction for once and will allow growth and job creation. As economic history shows, the sequence followed to recover employment after a crisis is usually the following: 1st Surplus in the current account, which occurred at the beginning of 2013; 2nd GDP Growth, which began in the second half of 2013; and 3rd Reduction in unemployment, which will occur in 2014. However, not all of the reduction in unemployment will be due to the creation of jobs, but part of it will be a product of the reduction in the active population, due to the departure abroad of the foreign population residing in our country and, to a lesser extent, of Spaniards in search of better job prospects.
6. The number of unemployed in the Canary Islands will fall below 380,000 people, from the current 393,000 unemployed. The Canary Islands will not be immune to job creation at a national level, but its active population will continue to grow, unlike what has happened in Spain as a whole, so that the reduction in the number of unemployed will be less relevant than in Spain as a whole.
7. The public deficit will be lower than the objective of 5.8%. Economic growth above what was expected will allow us to meet the public deficit objective, since tax collection will grow more than expected due to the improvement in the economic cycle.
8. House prices will stabilize. Starting from a fall in real estate prices of around 8% year-on-year during 2013, in 2014 real estate market prices will cease to fall year-on-year and that year will become the first since the beginning of the crisis in which prices stabilize or even grow weakly.
9. The Spanish stock market will grow by 15% throughout 2014. The recovery of the Spanish economy and relatively cheap values will allow this growth even after having risen 20% since September. The CAPE index (Cyclically Adjusted Price Earnings or cyclically adjusted price-earnings ratio) for Spain is below 12 when its historical average is 17, so stock values are cheap compared to their historical average and still have some way to go.
10. Outstanding credit for productive activities will begin to grow. After an intense reduction in credit to resident sectors to finance productive activities, which has led the volume of outstanding credit granted to productive sectors to fall from a figure greater than one trillion euros in 2008 to 700,000 million euros at the end of 2013. In 2014, solvent companies will begin a new cycle of investments partially financed by credit to face the increase in demand, which will take the volume of outstanding credits to exceed the year-end figures for 2013 for the first time since 2008.
In short, as I predicted a year ago, at the end of 2013 we are better than a year before, but only because we are coming out of the tunnel, an exit that was barely in sight at the time. At the end of next year we will be even better, as job creation and an exit from the crisis will have begun, although unfortunately it will still take us a long time to reduce our high unemployment rates to acceptable levels. Happy 2014!
