Santa Cruz de Tenerife (EFE) in these two years and a reduction in the unemployment rate to 14%, all due to the boost in the tourism sector, according to forecasts by BBVA Research.
These economic forecasts also face some risks, such as rising prices in the hotel sector (14% more than in 2019), which make the sector less competitive, and the depletion of the effect of lack of confinement on Europeans’ desire to travel, as well as the containment in consumption due to the increase in core inflation and the rise in interest rates.
BBVA Research calculates that in 2022 the Canary Islands GDP had an advance of 10.7%, when the Spanish economy advanced by 5.5%.
As explained in the presentation of the report on the situation of the Canary Islands in 2023 by the chief economist of BBVA Research, Miguel Cardoso, inflation and the lower dynamism of tourism have generated a slowdown in growth since mid-2022 that continues at the beginning of 2023 .
This slowdown is expected to be short-lived, until the uncertainties about the evolution of energy prices or interest rates are cleared up towards the middle of the year, so that between the end of 2023 and 2024 the levels of activity prior to the pandemic.
Cardoso pointed out that BBVA Research is working with a forecast for the Euribor to rise to 4% or 4.5%, but pointed out that the private sector is better prepared than in 2008.
On the one hand, because the indebtedness represents 70% of GDP, half that of the previous crisis, when it was at levels of 150%.
In addition, the private sector has more accumulated assets than then due to the reduction in spending in the confinement, so that deposits reach 70% of GDP, while in 2008 they were 50%.
Another differential factor with the previous crisis is that there are no imbalances between sectors, as happened with housing in 2008, affected by over-indebtedness and the excess supply of new housing.
Cardoso specified that in Spain as a whole there is no imbalance between housing prices and per capita income, as was the case between 2004 and 2012, but there is in the case of the Balearic and Canary Islands, where supply restrictions and the market of second residence put pressure on prices.
The execution of the European Next Generation EU funds, later than expected, should contribute to the advance of GDP in the next two years, since in the case of the Canary Islands the funds allocated until November represent 5% of GDP, when the average Spanish is at 2.7%.
In Spain, more than 15% of the tender for public works is being financed with the Recovery Plan.
In general, Cardoso pointed out, the dynamism in the execution of the Next Generation funds is below expectations and more in line with the execution of the structural funds.
BBVA considers it necessary for the funds to reach the private economy, which is still happening slowly, so that in 2022 the visas for the construction of non-residential works were 13 points below the pre-pandemic level.
Although tourism is expected to slow down in the coming months, mainly affected by the fall in the real disposable income of households in the markets of origin, this sector will continue to be the axis of recovery on the islands, and not so much the funds European countries, as is the case in the rest of Spain, where they will account for half of the increase in GDP.
Regarding the labor market, the report indicates that the unemployment rate has fallen to 18%, still 5.5 points more than the national average.
Affiliation to Social Security has grown at a faster rate than that of Spain as a whole, driven by the hospitality, commerce and public sector, and stands 6.5 points above that registered in the fourth quarter of 2019.
The report specifies that the expected economic scenario may be affected by doubts about the evolution of the tourism sector, since the loss of competitiveness due to the rise in prices could add an adjustment in demand due to the fall in household income and due to possible changes in consumption habits.
In the event of a slowdown in tourism demand, the sector should correct margins, warns BBVA Research.
Changes in the supply of air transport are another factor of uncertainty, since the price of international flights in the Eurozone have increased by 33%.
In the labor market there are also risks for companies, according to the report: if inflation persists, “salary tensions” may occur, in addition to the fact that a possible acceleration of activity linked to European funds may generate “a shortage of human capital with proper training.”
The report also calls attention to the sustainability of the Canarian public accounts, since BBVA forecasts a deficit of around 0.5% of regional GDP in 2022.
“If there is more financial burden and the financing system is not changed, more imbalances could be generated in the public accounts of this community”, points out BBVA Research. EFE