2023 GDP close to 2.5% a Successful talk about the behavior of the Spanish economy in relation to the Eurozoneto do As major economies such as Germany, Japan, the United Kingdom and Italy gradually collapse Technological stagnation (two forced quarters with negative rates), Spain challenges one of the empirical regularities that repeats itself over time. A decline in the economy resulting from the use of restrictive monetary policy to control inflation.
If one of the pieces of the “challenge” isn't the case then this challenge would be worth exploring. It is none other than that Amount of money flowing in the market. A decisive variable is complicated to analyze. The money supply is never uniform and it never moves symmetrically There is no direct relationship between interest rates and the quantity of money.
The latter is the key to what's going on. In less than two years Official interest rates have risen to the highest levels seen in the eurozone in the early 2000s (understood as the “terminal rate” of 4.5%), only the broadest measure of the money supply (M3) began to decline. In July! A year and after the first rate hike. What's more serious: In December, the first positive data on year-on-year increase in M3 was recorded. But Spain is still worrying: the M3 aggregate recorded only a negative and extremely low rate, which was -0.57% last August. The latest data relating to the month of December has been released +1.39% compared to December 2022.
What does this mean? The tight monetary policy that the ECB has been advocating for two years has not helped stem the unprecedented growth in the money supply in recent years. But this movement is not uniform or symmetrical in all countries. If we analyze the contribution of Eurozone countries to M3, In countries with significant contraction of M3 and long-term, quarterly GDP growth is currently negative..
“Government collections are increasing, and with the transfer of European funds, there is no need to resort to bank loans”
This is the case of Germany, where between the fourth quarter of 2022 and the first quarter of 2023, the volume of money has accumulated a negative growth, then indicates positive data, but very close to 0%. We can think of the latest data for December (+0.9% year-on-year). The German recession will only be technicalBut with great difficulty It will have very low economic growth in the coming quarters.
Outside the eurozone, the contraction of the money supply remains strong in the United Kingdom. It has reached its widest aggregate M4 It fell 4.2% in September and is still negative at the end of DecemberAlthough already very close to 0%. The transmission of monetary policy is more effective and uniform in the British economy than in the Eurozone. The case of Japan is particularly peculiar because years ago there was no direct correlation between money supply, inflation and economic growth. As for the US (another of the economies expected to record a slight slowdown), its broad aggregate (M2) recorded a 2.85% decline in December, striking after year-on-year declines. . Continuously. This behavior of money is a useful guide to see what will happen with growth in the coming quarters.
What factors can explain why the fall in the Eurozone has been so alarming and even in Spain's case only a one-month fall? Following the different definitions of money, narrow (M1) registers the largest decline due to the decrease in money in liquidity and demand deposits (-8.5% in the Eurozone and -7.25% in Spain). Adding term deposits of up to 2 years (M2) reduces the decline to -1% in the Eurozone and -0.2% in Spain.. If deposits over 2 years and in a different currency (M3) are added, both return to positive territory. So, what happens to the behavior of term deposits and their collateral: AA.PP and credit to the private sector.
when Debt to the public sector continued to decline at year-on-year rates as of December (-2.5% and -2.7% respectively), Credit to the private sector in the Eurozone is virtually stagnant (+0.48%), but it falls sharply in Spain (-2.41% year-on-year), having experienced 9 consecutive months of decline. So, where does the increase in deposits backing M3 come from? Well, from the public sector. The amount of public money in deposits reached a high of 116,114 million euros in recent years in November, with a strong increase of 13.25% year-on-year.
Although AA.PP deposits are a very small part of the total (totaling 2.13 billion euros as of November, of which 1.4 billion are from the private sector) Accumulation of nearly €20,000 million between January and November provides the necessary impetus to maintain money supply figures.. State collections are increasing, and with transfers of European funds, there is no need to resort to bank loans. This is the other side of the coin that determines GDP by the end of 2023. Public consumption contributes almost half of each year's rate. As always, look for the money trail to find out what's really going on in the economy.
