07 March 2017
Bilbao Campus
The Socioeconomic Climate Report for the fourth quarter 2016, prepared for the BBK by Deusto Business School, includes a detailed review of the latest statistics available on key social and economic indicators in our area.
The report interprets this information and forecasts the main global tendencies that impact business. The study also includes an introductory section with an overall evaluation of the current situation and prospects for the short, medium and long term with a view to disseminating relevant information to society.
The international scene was better than expected
The last quarter of 2016 and the first months of 2017 show stability and growth in the global economy, with better than expected performance, especially in advanced economies. This is the case of the USA and Europe with growth around 2% and China (exceeding 6.5%). Latin America is also emerging from a recession and its economy is now boosted by foreign trade and public and private investment.
Financial markets continue to grow, showing recovery of confidence and improved industrial production and international trade indicators.
This positive behaviour, in addition to higher prices for raw materials and energy, means higher inflation. Upward pressure on prices is expected to continue in the coming months.
Recovery is therefore expected to continue and consolidate during 2017 in spite of the uncertainty concerning the Trump administration’s new policies in the US and the European project’s ability to deal with the effect of the current elections and a new debt crisis episode in Greece. Isolated crises on financial markets are also possible although not expected to be as intense as the first global crisis or the later sovereign debt crisis.
This reasonably stable global context and low interest rates are once again placing fiscal stimulus policy at the forefront. In Europe, the most pressing unfinished business is higher productivity (and a resulting increase in salaries) and reducing inequalities.
Spain: on the path to recovery, although burdened by its public deficit
The Spanish economy is continuing to register acceptable behaviour on this positive panorama. If the current trend continues, the initial forecasts for GDP growth in the current fiscal year, both from official bodies (European Commission, OECD or the IMF estimated around 2.3%) and the Bank of Spain or the government (which predicted 2.5%) and private analysts (the Funcas Panel put forth 2.4%), could be revised upward. This tendency to more stable growth is based on the domestic and foreign demand and marginal growth of productivity.
In spite of these good prospects, which are continuing to be seen in lower jobless rates, albeit slowly, the problem of the public deficit is not yet being solved. The option to resort to borrowing to pay pensions this year (and thus avoid depletion of the Social Security’s Reserve Fund), which would mean increased debt, has been announced. This has been sidestepped in recent years by using the "pension piggy bank". Work has also started on reform of the tax and funding frameworks in the common regime Spanish autonomous communities.
Biscay and the Basque Country: the challenge of transferring recovery to society as a whole
On this panorama where the main export-oriented European economies (Spain, France and Germany) are recovering, the Basque Country's prospects for advancing towards further recovery and reducing unemployment are good. The region shows considerably lower public indebtedness and unemployment (which may drop to around 10% at the end of the 2017 fiscal year) than Spain as a whole. The region is beginning 2017 with better prospects than the nation as a whole. However, the recently published European Commission’s “Regional Competitive Index 2016” places the Basque Country in position 119 out of a total 263 regions, meaning it has dropped 16 places in comparison to the last ranking released (2013 RCI).
Tax reform is expected to be at the centre of economic debate in the coming months, both concerning renewal of agreements with the State (Economic Agreement and Quota), and possible measures related to tax revenues and expenditures that are agreed in the revision framework of the last tax reform in 2014.
Biscay closed the 2016 fiscal year with all its economic drivers running:
- its economy grew 3% in the last quarter of the year, two tenths above the previous quarter;
- the Industrial Production Index registered interannual evolution of 4.2% growth;
- exports increased in the last quarter, reaching levels similar to the same period in 2016.
As a consequence of the above, an additional 10,000 people contributed to the Social Security in the last quarter of the year, which means 1.6% growth in terms of the interannual rate.
This good economic performance has also been evident from the Public Treasury’s first collection figures in the 2017 fiscal year. Collection of agreed taxes increased by 2.6% in comparison to the previous year.
The challenge of effectively transferring economic recovery to society has become the main problem in developed nations.
In spite of the increasing importance of tax policies to nurture growth and make it sustainable, and their key role as a wealth redistribution instrument, it would be an error to centre the debate exclusively on taxation.
The framework must be made broader and two additional mechanisms should be included:
- employment, which is undergoing substantial changes as per duration and characteristics, as well as salary levels;
- the key role of business in creating social value.
The three prongs formed by taxation, employment and the social impact of business form the fundamental elements needed to redistribute wealth that the private sector is creating in the 2017 fiscal year.
