The Threats to Recovery

It is one thing to claim that there are regular, objective conditions to maintain and increase investment, and quite another to try to measure the state of business optimism or pessimism. Without going into the difficulties of measuring the states of mind -- invariably heterogeneous and unprovable -- of a social universe that clearly makes its psychic disposition a work tool, it seems clear that there are several political factors that influence such disposition. However, there are factors which should not prevail over the primary parameters; for example, the expectations of growth of the corresponding market, the marginal profitability of the investment, or the availability of credit. Let’s take for granted that objective conditions have improved in general, without excessive enthusiasm, and that this improvement has been sustained since at least 2015, and that profits perform, at least in large companies. Thus, this should diminish the signs of corporate pessimism that have appeared in recent months.

Without a doubt, there are reasons for some concern. The international organizations and the Spanish government are pushing a slight economic slowdown in Spain starting in 2019 (which would have happened even with the PP* in power. The external economic environment is not governed from Moncloa**), and the cooling of tourism is no small part of that moderation. To ask oneself if the government of Mariano Rajoy*** could do more to rationalize the flood of tourism — which has contributed to the precariousness of the Spanish market — is pure rhetoric. It could, but it did not, and now the Mediterranean rim, Spain’s competitor, will recover the travelers lost during the previous period of insecurity. Decades of speeches and reports defending the transformation of Spanish tourism into a market of greater quality and added value have resulted in nothing concrete. The squalid business of sun and beach tourism continues to proliferate with little value added. Spain is very vulnerable to any minimal modification of environmental conditions.

The threat to business confidence has a name: Donald Trump. He could be the main threat for Spanish business because he is leading the world economy into a new phase of recession. The effects of his policy, which, at best, could be defined as an attempt to hammer away at the U.S. trade deficit, are already producing a notable decrease in investment between countries, an increase in the cost of production and a return to mercantilist techniques of subsidizing those sectors affected by the catastrophic rupture of free trade. Washington has started by granting public aid to agriculture, but will end up subsidizing cars, steel and even Manhattan restaurants. There is a remote hope that perhaps after the November elections, Trump will lower the pressure on protectionism.

Trump is an economic threat; he represents a flagrant bankruptcy of the stability of the markets. Catalonia, on the other hand, is a genuine political threat. It represents uncertainty and, as has already been repeated in these pages, uncertainty tends to reduce the investment opportunity to zero. It seems that Spanish business concedes that it is unlikely to succeed in the new climate — for the moment, it is just the political atmosphere — created by the change in government that can be seen between Moncloa and the Generalitat.**** The independence movement's immunity to reality is an obvious cause of economic disturbance, but its most damaging effect is the persistence over time. Much of the damage has already been discounted, but new damages may appear.

Even approaching the matter naively, albeit inaccurately, it turns out that the greatest risk for the Spanish economy comes from protectionism (including Brexit); but because of the rise in rates in Europe, it is still too soon to be worried.

* Editor's note: PP is a reference to Partido Popular or Popular Party.

** Editor's note: Moncloa is a reference to the office and residence of the prime minister of Spain.

*** Editor's note: Mariano Rajoy is the former prime minister of Spain

**** Editor's note: The Moncloa and Generalitat refer to the systems of government of Catalonia and Valencia.