Simona Gambarini: “Not all EU countries suffer from the same type of inflation”

The war in Ukraine, high inflation and the limitations of globalization are the arguments used by Simona Gambarini as a senior market specialist at Goldman Sachs in her analysis of the macroeconomic and financial outlook. The Board of Directors recently held a meeting with a group of investors in A Coruña to present their vision of economic reality in the current global context and supply of funds.

— Are we facing unpredictable economic prospects despite so many unexpected changes?

—The reason why it is unpredictable to plan the economy lies in the high inflation that has not been seen since 1970. It is an unusual situation. Central banks have been focused on growth for the past 30 years. Now they have to find a balance between lowering inflation and maintaining a positive level of growth.

— The war in Ukraine, after the pandemic, derailed all economic forecasts.

— High levels of development after the health crisis were dismantled by the war, the first effect of which was rising inflation, and central banks responded with the fastest and most dizzying rise in interest rates since the 1980s. Then came the energy crisis in Europe and the fear of recession. The reopening of the Chinese economy and milder weather last winter led to more positive growth expectations.

— Did monetary institutions and authorities avoid drastic corrections to avoid scenarios like 2008?

— They chose to implement aid, such as European funds, or measures to limit inflation and the unequal impact it creates on the most vulnerable population, giving priority to investments in initiatives that have a long-term effect on growth, such as decarbonization, technology, digitization or investment in infrastructure.

—Despite everything, high prices have a disastrous effect on the basket.

—The ECB will have to keep raising interest rates. Inflation is starting to fall, albeit less than core inflation. But in Spain, the high unemployment rate puts less upward pressure on wages, so the tension is less in this indicator, which measures price variations without taking energy and food into account.

— Which countries are more exposed then?

— The problem in Europe is that not all countries suffer from the same type of inflation, the causes are not the same for everyone. In Italy and Germany they suffer more from the energy crisis, due to the price of fuel, while in the Benelux [Bélgica, los Países Bajos y Luxemburgo] price growth is caused by wages because they are tied to inflation by law. This is not the case with Spain. This is the problem of the ECB, which has a hard time implementing a one-size-fits-all policy. We estimate that by the end of 2024, the inflation level will return to 2%.

— That is why the stability plan must be adapted to the situation of each member state?

—Germany is one of the economies most affected by the energy crisis and inflation, and in 2008 it advocated austerity. He now seems more willing to accept a common European debt issue to mitigate the effects of the crisis. There is an opportunity for Europe to unite and become a world leader in clean energy.

— Another factor that could determine growth would be the lack of labor force?

—In Europe, we have an increasingly elderly population; In fact, the impact that labor shortages can have on rising prices has been seen during the pandemic. There are fewer and fewer workers, wages are rising and it affects inflation. There are two solutions: favor immigration or retrain workers from aging sectors to other growing segments. This situation has already been experienced in history, with the industrial revolution and services. This re-conversion takes time, but is one solution to the problem.

— And all this while the global economic model is changing towards protectionist policies.

— Undoubtedly, the level of globalization is declining. Since 2008, there has been a sustained slowdown, the clearest examples being the trade war between the US and China and the pandemic, which has shown that it is not healthy to have such a strong economic dependence. Finally, the war in Ukraine revealed that reliance on third parties for strategic goods such as energy or raw materials can cause recession.

— And the health of the banks?

— The risk of system failure is low. Financial institutions are sound, but the central bank’s interest rate hikes will worsen the recession.