They say a picture is worth a thousand words, a conclusion the IMF seems to share. Some time ago, the supranational institution began the tradition of attempting to condense the global economic situation at the start of each year into five charts. Viewed this way, last year does not invite optimism for the future.
Global growth in 2019 was the weakest since the financial crisis, concentrated in various key countries and regions. The weakness of productive investment has contributed significantly to the global economic slowdown. On the supply side, declines in manufacturing output and trade stand out. All of this has led major central banks to further deepen exceptional expansionary monetary policies and to signal their readiness to maintain them for as long as necessary. Finally, the relative stability in consumer confidence and the improvement in employment have underpinned private consumption.
It can also be considered a tradition to begin the year on a more positive note by anticipating future economic developments. A few days ago, the institution now headed by Kristalina Georgieva appeared somewhat more optimistic, leaning toward a stabilization in the growth rate during this year and a slight improvement for 2021. This scenario is contingent upon the maintenance of favorable financial conditions and a certain easing—though not disappearance—of current uncertainties, such as Brexit and trade tensions. Naturally, it also reiterates the need for greater international coordination on several fronts to combat risks that are global in nature.
In this context, favorable financial conditions are important for cushioning risks, but their persistence over time reduces their effectiveness and may even generate new dangers in the future by facilitating high public debt or potential excesses in asset pricing and risk management in financial markets. Let us consider, for a moment, the decline in investment mentioned by the IMF, likely explained by structural reasons—such as the growing weight of intangible investment compared to investment in machinery—and hopefully by other transitory ones, such as reduced economic certainty in the future. Economic policy should focus on increasing productive investment through reforms and a responsible fiscal policy, thereby encouraging a decrease in high global savings and contributing to lower risk aversion among economic agents.
In Spain, the financial position of households and companies is more solid following the significant debt reduction process carried out since the crisis. Households and companies are now better prepared to take advantage of an improved economic scenario, although the speed and intensity of this improvement will depend on the policies implemented both within the Eurozone and in Spain. The crisis demonstrated the dynamism of our companies, and currently, the progressive adjustment of external demand through the current account surplus is compatible with economic growth close to its potential level. Having a solid banking system that is better prepared to fulfill its ultimate goal—financing prosperity—is undoubtedly the necessary condition to continue underpinning growth.
The current economic scenario is therefore somewhat better than it was a year ago, which is far from reassuring. It is important that we all continue to combat the uncertainties and vulnerabilities that currently beset us. Banks are doing so by finding solutions to their customers’ demands, adapting to regulatory changes and to a complex scenario of negative interest rates. They are also showing their willingness to accompany the rest of society in the significant challenge posed by the transformation toward low-carbon growth.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
