The economy sends the first warning signs to investors

Key economic indicators continue to show signs that the light at the end of the tunnel is just a flicker: while inflation is expected to continue its upward trajectory (currently at 8.1% in Spain), the OECD has lowered it’s growth forecast for Spain for 2022 to 4.1% (from 5.5%).

These data paint an even less optimistic picture than anticipated before the war in Ukraine started. As far as inflation goes, Alberto Matellán, chief economist at MAPFRE Inversión, explains that, at such high levels, "it’s already impacting on real income and savers", and the problem is fast becoming more of a social issue than an economic one.

The same goes for growth: Matellán ruefully observed that it’s already priced in and there are “warning signs” visible. “When the growth figure for one year worsened, it usually meant that the following year’s figure improved. But today we’re seeing revisions slide for both years, which means growth is going to suffer significantly.” The current situation is that, although the recent GDP data may give the European economy a slight breather for a few months (it grew 5.4% in the first quarter compared to an expected rise of 5.1%), the post-summer estimates are turning out to be more pessimistic.

Against this backdrop, will central banks recalibrate their monetary policies? "No. The normal thing is that the road map holds firm”, says Matellán. And so it has been: the meeting of the European Central Bank has brought some far-reaching announcements in the process of returning to monetary normalization in the region: among the most prominent is a 25-point rise in interest rates for the month of July (the first rise in 11 years). In fact, the bank has also confirmed that they’re leaving the door open to gradual increases in rates for September, depending on how inflation progresses between now and then (the ECB had estimated an annual rate of 6.8% for 2022 in their latest forecasts).

In this sense, the economist considers that the announced measures serve to pave the way towards "the end of the asset purchase program", as the central bank has been able to confirm, which in his opinion "is something that the market had counted on happening". This means that the European Union would close the book on a six-year period of negative rates. 

The mist should clear from September on, both from the macroeconomic point of view (price levels are at a plateau, so it could be when we some moderation) and the monetary end of things (both the ECB and the Fed will react depending on the performance of the economy). In any case, Matellán maintains that investors shouldn’t panic and "maintain their portfolio if it’s adequate, and have faith in the work of their fund managers."