17.10.2022
Testimony before the Parliamentary Budget Committee in relation to
the Draft State Budget for 2023
Congress of Deputies
Pablo Hernández de Cos
Governor
Ladies and gentlemen,
I appear once more before this Committee for the parliamentary presentation and discussion
of the State and Social Security Budget (hereafter, the Budget) for 2023.
In my address I will first review the Spanish economy's performance and macroeconomic
outlook in an extraordinarily uncertain international environment characterised by, inter alia,
globally high inflation rates and the numerous adverse implications of the unjustified Russian
invasion of Ukraine. Second, I will analyse the role that should be played by the various
economic policies in such a setting. Third, I will offer my views on the main aspects of the
Draft Budget for 2023, as well as the Budgetary Plan for 2023 published on 15 October. For
this purpose, I will begin by offering an analysis of the various channels through which the
current inflationary episode may affect the public finances. Lastly, I shall conclude with
some thoughts on the medium-term fiscal policy challenges facing our country.
1 Recent developments in and the outlook for the Spanish economy
1.1 The global and European context
In recent months, global economic activity has been appreciably losing steam. This has
been the result of various interacting adverse factors. In particular, the surge in inflation
worldwide has intensified in recent quarters, with rates reaching levels not seen for decades.
And this has elicited a forceful response from the main central banks, which is itself causing
global financial conditions to tighten significantly.
In addition, the acceleration in consumer prices is largely being driven by the increase in the
cost of numerous commodity imports, which is reducing the purchasing power of
households and firms.
In turn, numerous commodity price rises have been exacerbated by the war in Ukraine,
which has also generated uncertainty regarding the security of Europe's energy supply and
even the possibility of a major escalation in global geopolitical tensions.
All these factors together, along with enduring bottlenecks of various sorts that, despite
some incipient signs of easing, continue to hamper the functioning of global production and
supply chains, already appear to have contributed, for example, to a notable slowdown in
activity in the two main world economies.
In particular, in the United States, real GDP fell during the first half of the year, while in China,
partly as a result of the zero-COVID policy applied by the authorities and the fragility of its
real estate sector, GDP also contracted in Q2.
Signs of a slowdown in the world economy are already very widespread across countries
and indicators. A case in point are the confidence indicators for Q3. Both manufacturing
and services PMIs have fallen appreciably in the main world economies (with the notable
exception of China, where the fall was particularly sharp in Q2), to stand in many cases in
contraction territory. Weaker activity is also reflected in world trade, which began to slow
down in the spring, and in commodity prices, which have mostly moderated since the
middle of the year.
As a result of these developments, a large majority of analysts have begun to revise their
growth forecasts systematically and very significantly downwards, while repeatedly making
upward corrections to their inflation forecasts. In addition, the financial markets consider
that the likelihood of a global recession has risen significantly.
A recent example of this are the latest IMF forecasts, published last week. According to
these forecasts, global economic growth will slow from 6% in 2021 to 3.2% in 2022 and to
2.6% in 2023. The rate forecast for 2022 is down 0.4 pp from the forecast in the IMF's April
report, while the 2023 rate is down 1 pp.
By contrast, the stronger, broader-based inflationary surge has prompted a notable upward
revision to inflation forecasts. In particular, according to the new IMF projections, global
inflation will stand at 8.7% in 2022 and 6.3% in 2023, 1.3 pp and 1.5 pp, respectively, above
the April projections.
Europe is particularly exposed to some of these developments. For example, it is highly
sensitive to the war in Ukraine on account of its geographical proximity to the conflict and,
in particular, its reliance on commodity imports from Russia, especially imports of gas,
which is used as a primary source of energy by households and firms and also in electricity
production.
The war has triggered increasing disruptions to the supply of gas, which Europe is
addressing through a number of complementary channels, including the geographical
diversification of its imports of gas, replacing gas with other energy sources (limited
possibilities in the short term) and reducing consumption, all of which have resulted in high
storage capacity utilisation.
Nevertheless, the measures adopted to date cannot fully guarantee there will be no supply
interruptions this winter, especially in some central European countries. In the least
favourable scenarios, such interruptions could severely affect economic activity.1
According to Banco de España estimates, a hypothetical interruption of energy imports from
Russia would have an impact of between 2.5% and 4.2% on EU GDP in the first year,
depending on the assumption considered regarding the European economies' ability to
replace Russian energy sources. The impact would range between 1.9% and 3.4% for
Germany, 1.2% and 2% for France and 2.3% and 3.9% for Italy. Such a scenario would
also foreseeably lead to a greater surge in inflation in the short term. The impact on the
Spanish economy would be substantially lower, given that Spain is less energy dependent
on Russia and has greater supplier diversification. Based on these simulations, such impact
would range from 0.8% to 1.4% of GDP. Practically one-half of these effects would be
attributable to the impact on the other European countries. At any rate, these values should
be regarded as short-term impacts which would gradually decrease as the ability to replace
Russian energy imports increases.
Largely as a result of the deepening of the energy crisis in Europe in recent months,
inflationary pressures have increased in the euro area and are more persistent than was
estimated some months ago.
Thus, the inflation rate in the euro area reached 10% in September. Around 40% of inflation,
in terms of composition, is explained by the energy component, whose price increase has
forcefully fed through to the prices of other goods and services. Accordingly, it is estimated
to have "indirectly" contributed one-third of the increase observed in underlying inflation
(10% of headline inflation).
Food commodity prices have also risen sharply, as a result of the strength of global demand,
adverse climate factors and the higher costs of international shipping and some key inputs,
such as fuels and fertilizers. Indeed, around 25% of the rise in inflation is due to the food
component, which also seems to have fed through, to some extent, to other goods and
services.
Aside from the changes in energy and food prices, we have also seen inflationary pressures
spreading in recent months, leading to underlying inflation of 4.8% in September, against a
setting in which certain supply restrictions still persist in some sectors and there has recently
been a strong reorientation of demand towards more contact-intensive services.2 Indeed,
in August more than 40% of the underlying inflation items reached inflation rates above 4%.
As regards developments in activity, GDP growth in the euro area surprised on the upside
during the first half of the year, with quarter-on-quarter increases of 0.7% and 0.8% in
2022 Q1 and Q2, respectively, largely as a result of the positive effects of the "reopening"
of the economy following the lifting of almost all the restrictions set in place to contain the
spread of the pandemic. However, the most recent activity indicators - especially
confidence, but also consumption and industrial production indicators, among others -
point to a considerable loss of momentum in Q3.
This is mainly a reflection of the cumulative loss in households' purchasing power, the
energy crisis and its effects on the most energy-intensive industries, the weakening of global
demand, the tightening of financial conditions resulting from monetary policy normalisation,
and economic and geopolitical uncertainty. Insofar as the pervasiveness of this broad set
of factors remains relatively high over the coming months, their adverse impact on activity
will continue to be notable in the short term.
In this regard, the most recent economic projections for the euro area envisage a very sharp
decline in activity in 2023. According to the IMF's latest projection exercise, the GDP growth
rate for the euro area as whole will fall from 3.1% in 2022 to 0.5% in 2023. This implies a
very significant downward revision of growth for 2023 compared with the IMF's April report,
in which growth of 2.3% was forecast.
In recent months the analysts' consensus has been revising up significantly the inflation
forecasts for both 2022 and 2023. In particular, according to the latest IMF report, euro area
inflation will stand at 8.3% on average in 2022 and 5.7% in 2023, 3.1 pp and 3.5 pp,
respectively, above the IMF's April forecasts.
Broadly speaking, these IMF projections (which I have been referring to in this testimony
because they are the most recent ones, having been published last week) are consistent
with those of other institutions, such as those published by the ECB and the OECD in
September.
In any event, I wish to highlight that these economic projections are currently subject to
extraordinary uncertainty. This uncertainty is reflected, for instance, in the dispersion among
analysts in the one-year economic outlook for the euro area. At present this dispersion is
very high in the case of GDP - close to the levels observed in the 2008 financial crisis - and
stands at an all-time high in the case of the inflation outlook.
Specifically, the outlook for growth and inflation is highly dependent on how the war in
Ukraine unfolds, given that this will largely determine the behaviour of energy commodity
prices (mainly gas and electricity prices), the possibility of energy supply interruptions and
production cuts in some of the region's economies (especially if the coming winter proves
to be very cold), the severity of production and supply chain bottlenecks, and future
developments in economic agents' confidence.
In this connection, the ECB's latest projections include a downside scenario that envisages
the materialisation of some of these downside risks, as well as others related to financial
market performance. In this scenario, in 2023 euro area GDP could contract by 0.9% and
average inflation could rise to 6.9%.
Therefore, the risks to the baseline projection scenarios may be said to be tilted to the
downside in the case of growth and to the upside in that of inflation.
Naturally, as I will next discuss, this high uncertainty and the majority of these risk factors
also affect the analysis and forecasts relating to the Spanish economy.
1.2 Recent developments in the Spanish economy
In Spain, virtually all health restrictions (which had been deployed during the most acute
phase of the pandemic) have been lifted over the last few months, significantly boosting
activity in the second quarter of 2022, especially in the sectors most dependent on social
contact. Thus, in Q2 GDP grew at a quarter-on-quarter rate of 1.5%, far exceeding the 0.4%
forecast in the Banco de España macroeconomic projections exercise published in June
and the GDP growth rate in the same period for the euro area as a whole (0.8%).
This growth was mainly underpinned by the buoyancy of exports, private consumption and
construction investment. On the supply side, the highest growth rates were in the market
services sectors, particularly leisure- and tourism-related sectors, while the performance of
industry has been somewhat weaker owing to supply difficulties and higher energy prices,
among other factors. Additionally, growth in activity has been accompanied by the
continuing strength of job creation, particularly in terms of the number of hours worked,
which has risen by more than 3% in 2022 H1.
In any event, despite this high output growth, in Q2 Spanish GDP was still 2.2 pp lower than
at end-2019. By contrast, in 2022 Q2 euro area GDP had already surpassed this level by
1.8 pp. In the labour market, the gap was narrower, although still negative. In terms of total
hours worked it was -0.7 % and in terms of the number of people employed it was -0.8 %,
compared with the related slightly positive gaps (of 0.6 % and 1.7 %) observed in the euro
area.
More recently, a wide range of indicators suggest that the pace of Spanish economic growth
has slowed significantly in Q3. For instance, the rate of growth of social security
registrations, which surprised on the upside in the first half of the year, slowed appreciably
in Q3, with a seasonally adjusted quarter-on-quarter growth rate of 0.3%, 0.7 pp below that
observed in Q2. Other quantitative indicators point in the same direction, but not all the
information for the quarter is available for some of them. This is the case, for example, for
various spending indicators (such as those relating to retail sales and new car registrations)
and activity indicators (such as the industrial production index).
The qualitative indicators available confirm this loss of momentum in activity during the
summer months. In particular, the results of the Banco de España Business Activity Survey
(EBAE)3
suggest that there was a decline in Spanish firms' turnover in Q3, following the
improvement seen in the previous quarter. Along the same lines are the PMI (the composite
PMI fell to 48.4 points in September, in contractionary territory, compared with 53.6 points
in June) and the economic sentiment indicator (which declined to 96.7 points in September,
5.2 pp below the levels posted in June).
In any event, the recent performance of economic activity is highly uneven across sectors.
In particular, as observed in Q2, the sectors that have benefited most from the end of the
pandemic restrictions, such as accommodation and food services and leisure, have shown
more momentum in recent months, especially compared with manufacturing.
As in the global and European setting, this recent slowdown in Spanish economic activity
basically reflects the adverse impact which a number of factors, highly influenced by the
unfolding of the war in Ukraine, have had on it. These factors include most notably the
persistence of high inflation rates, the tightening of financial conditions, lingering
supplyside distortions and bottlenecks, lower agents' confidence and a high degree of uncertainty.
Not only have these factors contributed to a weakening of activity in Q3, but they will also
foreseeably continue exerting downward pressure on the outlook for Spanish economic
activity in the coming quarters.
Before I present this outlook, please allow me to describe the recent changes in prices in
Spain. The HICP stood at 9% in September. As in the euro area, around 50% and 30% of
this year-on-year increase is due to the behaviour of the energy and food components,
respectively, including their indirect effects on underlying inflation.
Indeed, the decrease in inflation in September (from 10.5% posted in August) was mainly
attributable to the slowdown in energy prices and, to a lesser extent, in services prices. This
was partially offset by the higher rate of growth in the prices of non-energy industrial goods
and food.
Returning to the persistence and widespread nature of the current inflationary pressures,
underlying inflation stood at 4.8% in September (only 0.1 pp less than in August) and, in the
same period, 55% of the HICP items recorded year-on-year price growth of above 4% (in
January 2022 this percentage was below 25%). These dynamics have undoubtedly been
favoured by the persistence and magnitude of the surge in energy and other commodity
prices in recent quarters, which have been passed through to the prices of other goods and
consumer services more intensely than before the pandemic.4
It should also be borne in mind that, according to Banco de España estimates, the different
measures adopted by the authorities to contain inflation have helped lower headline inflation
(in August) by somewhat more than 3 pp, with the cap on the price of gas used to generate
electricity having the greatest mitigating impact (slightly above 1 pp).
For the time being no significant second-round effects on inflation via wages are being
detected, while profit margins remain relatively contained in aggregate terms.
On the data to September, the average wage settlement under collective bargaining
agreements in force in 2022 is 2.6%.5 However, the percentage of workers covered by
indexation clauses has risen to almost 25% (from 16.1% in 2021),6 which increases the risks
of future second-round effects on inflation being stronger than those observed to date.
As regards profit margins, net operating income for the median firm in the Banco de
España's Central Balance Sheet Data Office Quarterly Survey held relatively stable in
2022 H1, at around pre-pandemic levels.7 Based on the information in the Quarterly
NonFinancial Accounts for the Institutional Sectors, the ratio of gross operating surplus (GOS)
to gross value added (GVA) for non-financial corporations (NFCs), which had returned to
pre-pandemic levels at end-2021, declined in the first two quarters of 2022. In any event, it
is important to highlight that these overall developments conceal considerable
heterogeneity across sectors and firms.8 Thus, for example, the sectoral information in the
Quarterly National Accounts points to profit margins performing more dynamically in
manufacturing, mining and quarrying, energy and water, in contrast to the more sluggish
performance of profit margins in construction.
1.3. Macroeconomic projections for the Spanish economy
The Banco de España published the latest update of its macroeconomic projections on
5 October.9 Compared with the projections published on 10 June, the current projections
incorporate the new information that became available between then and the end of
September. This information specifically includes the latest data from the Annual National
Accounts, the Quarterly National Accounts (QNA) and the Quarterly Non-Financial Accounts
for the Institutional Sectors. Overall, this new information, particularly the 2022 Q2 GDP
growth figure, constitutes a somewhat more favourable starting point for activity in the
current projection exercise than expected in June. This is especially important in terms of a
higher average GDP growth rate for 2022.
The new projection exercise also incorporates the changes observed in the technical
assumptions underlying developments in the different key variables in the exercise. In line
with the developments I have already discussed, as compared with the June projections,
the main changes to the assumptions relate to energy prices (lower for oil - consistent with
weaker global activity -, but significantly higher for gas), short and long-term interest rates
(both now higher), the euro exchange rate (now lower) and export markets (whose growth
rate has been revised downwards in 2023 and, to a lesser extent, in 2024).
As I have already stated, following the pick-up in activity in Q2, various developments, driven
by the war in Ukraine, had a negative impact on activity during the summer and have
darkened the global, European and Spanish economic outlook for the coming quarters. In
particular, the rise in geopolitical uncertainty and the recent deepening of the energy crisis
in Europe, as a consequence of the interruptions to gas supplies from Russia, have had
global consequences, weighing on economic growth and increasing inflationary pressures.
All this has affected the spending decisions of private agents in Spain and other countries,
by knocking their confidence and exacerbating the loss of real income they were already
experiencing. In addition, the persistence of the pronounced upward surprises in consumer
price growth has led to a tightening of monetary policy globally, which has in turn resulted
in tighter financial conditions.
Against such a complex backdrop, and with the caveats stemming from the fact that the
quantitative information available for August and September remains partial, it is estimated
that Spanish GDP grew by 0.1% quarter-on-quarter in Q3, slowing considerably from the
1.5% observed in Q2. However, to indicate the high level of uncertainty surrounding this
projection, it should be noted that, according to the different econometric models used at
the Banco de España, the forecast ranges from +0.5% to -0.5%.
Looking ahead to the coming quarters, a crucial assumption underpinning the projections
are the gas and electricity price trajectories. Specifically, the projections are constructed on
the basis of gas prices on the Iberian Gas Market (MIBGAS) futures markets.10 This means
it is assumed that the prices negotiated on these markets reflect all the relevant information
regarding the most likely future scenario for the geographical diversification of European
gas imports (to replace Russian gas with supplies from other producer countries), the
substitution of other energy sources for gas and energy-saving measures. Gas prices on
futures markets should also reflect to some extent the most likely scenario for the rate at
which the impact of the current uncertainty on agents' spending decisions will dissipate.
Over the next few quarters, high gas and electricity prices will adversely affect economic
activity. However, that same increase in gas prices, coupled with the measures adopted at
European level to reduce gas use, will dampen demand for this commodity. This should
avoid the need for severe gas rationing under the baseline scenario, even if Russian gas
supplies to the European Union were to be cut off completely.
Activity will recover increasing momentum from spring, fuelled by a combination of factors.
These include a gradual easing of the prevailing energy market tensions - bringing with it a
progressive recovery in agents' real income, confidence improvements and a strengthening
of external demand -, the gradual abatement of the persisting global supply chain
disruptions and a comparatively larger deployment of Next Generation EU (NGEU) funds.11
Inbound tourism flows, which have now virtually recovered pre-health crisis levels, will also
underpin activity, although in the near term their momentum will be tempered by the effects
of higher inflation on the real income of potential tourists.
In annual average terms, GDP growth of 4.5% is projected for 2022. Given the significant
slowdown in economic activity expected in the second half of the year, this output growth
essentially reflects the activity improvements that had already materialised by the end of
Q2.
In 2023, GDP growth will moderate very significantly, to 1.4%, as a result of weak activity
levels in 2022 H2 and in 2023 Q1. Lower output growth in the final stretch of one year
considerably curbs the average growth rate in the following year through carry-over effects.
Meanwhile, the economic improvement from spring 2023 will progressively intensify, paving
the way for GDP growth of 2.9% in 2024. The return to pre-pandemic output levels will
probably be delayed until 2024 Q1, some two quarters later than projected in June.
As compared with those published in June, the current projections revise up GDP growth
for 2022 by 0.4 pp; however, the growth forecast for 2023 is 1.5 pp lower than projected in
June.
Turning to inflation, headline HICP is expected to gradually ease from its current levels,
largely due to the expected reduction in the pace of growth in the energy and food
components, which is consistent with the price trajectories of oil, gas and food commodities
on the futures markets.
However, underlying inflation is not expected to decline from its current elevated levels until
next spring, since, over the coming months, firms will finish off passing through the recent
cost increases to their selling prices. The completion of this pass-through, coupled with the
firming of the recent indications that the persistent global supply chain disruptions are fading
away, should lead to a progressive moderation of underlying inflation. Thus, in annual
average terms, underlying inflation will reach 3.9% this year and moderate to 3.5% in 2023
and 2.1% in 2024. Headline inflation, meanwhile, will ease from 8.7% in 2022 to 5.6% in
2023 and 1.9% in 2024.
These projections rest on two very important assumptions. First, the available evidence
indicates that the prices of non-energy goods and services have responded to the current
energy price shocks more swiftly in the current inflationary episode than they have, on
average, in the past. The projections therefore assume that the feed-through of higher
energy costs to final selling prices is already at a relatively advanced stage. Second, the
wage response to the upturn in inflation has, thus far, been moderate. Looking ahead, this
response is expected to remain relatively constrained, so that a price-wage spiral will be
avoided.
The recent surprises in price growth - largely explained by sharper increases in energy and
food commodity prices than expected in June, and by a faster feed-through of that price
growth to the prices of other goods and services - mean a higher starting point than
envisaged in the June projections. This new starting point, together with the new projected
trajectories for energy prices and a lower euro exchange rate, implies persistently higher
headline and underlying inflation rates than projected in June.
1.4 Risks to the projections
As I mentioned earlier, when referring to the consensus forecasts for the global and euro
area economies, the projections for the Spanish economy that I have just described are
subject to a high level of uncertainty and the risks to the projections are tilted to the
downside in the case of activity and to the upside in the case of inflation.
The main risk derives from developments in the energy markets that could differ significantly
from those envisaged in the baseline scenario. Such risks would in principle be
concentrated in the gas market, and they could manifest themselves in prices (following a
higher or lower trajectory than in the baseline scenario) and in volumes (greater supply
problems than those considered or, conversely, a complete absence of restrictions on the
use of gas).
Given this situation, performing various sensitivity exercises is useful for assessing how
certain significant changes in the baseline assumptions regarding natural gas market
dynamics may affect growth and inflation. This was the Banco de España's approach when
presenting its latest projections.
First, in the case of gas price developments, an adverse scenario is considered, which
assumes that gas prices gradually increase from their current level, reaching their
August 2022 peak in January 2023 and remaining at that level over the rest of the projection
horizon. The simulations performed using the Quarterly Macroeconometric Model of the
Banco de España (MTBE, by its Spanish abbreviation) suggest that, under this scenario,
GDP in 2024 would be 1 pp lower than that envisaged in the current projections, while
inflation would be 1.1 pp and 0.5 pp higher in 2023 and 2024, respectively.
Second, a benign scenario is also considered, which envisages lower gas prices from
October 2022 than under the baseline scenario. Specifically, prices are assumed to decline
on a linear basis to January 2024, whereupon they reach the level indicated by the futures
markets for transactions for this time horizon and then hold steady at this level until
December 2024. This scenario would lead to a greater reduction in inflation rates and
stronger rates of growth in activity from 2023 than those projected under the baseline
scenario. Specifically, GDP would, in cumulative terms, be 0.5 pp higher than under the
baseline scenario, while inflation would be 0.8 pp lower.
Lastly, as regards volumes, a single alternative scenario was drawn up, which assumes that
Europe's ability to replace Russian gas imports in the short term is limited. Such limitations
may owe to the difficulty in finding alternative suppliers, gas not being easily replaceable by
other energy sources, demand being high ahead of an unusually cold winter, or any other
reason.12 Under this scenario, in the period 2023-2024 activity would grow 0.4 pp less than
under the baseline scenario, while inflation would be 0.2 pp higher.
The projections are also subject to other additional risks.
A first source of uncertainty is associated with the extent to which the recent rise in prices
and costs is passed through to other prices in the economy and to wages. In this respect,
the forcefulness of the pass-through of higher production costs to final prices in recent
months, alongside the greater prevalence of indexation clauses in collective bargaining
agreements,13 has increased the likelihood of significant second-round effects or
pricewage spirals and, therefore, of a further exacerbation of the inflationary process, with
adverse ramifications for external competitiveness and for activity and employment.
The simulations performed using the MTBE suggest that the potential materialisation of
these second-round effects could have a negative impact 1 pp higher in cumulative terms
to 2024 in the case of activity and employment and just over 2 pp higher in that of prices,
compared with a scenario where the second-round effects were relatively limited.14
Further, the persistence of the current episode of high price growth increases the risks of a
deanchoring of medium-term inflation expectations, which have risen, albeit modestly, in
recent months. A potential deanchoring of such expectations would affect firms' and
workers' decisions in current price and wage-formation processes, which would further
intensify the existing inflationary pressures and call for a more forceful monetary policy
response.
Second, given the considerable scale of the investment projects associated with the NGEU
programme, an additional source of uncertainty is the pace at which they are rolled out and
their impact on the economy. The revisions to the impact of these funds in the Banco de
España's recent projection exercises are a good example of this uncertainty. Thus, for 2021,
the Banco de España initially estimated in March of that year that the use of NGEU funds
would have an impact of approximately 1 pp on GDP growth. On recent data, that impact
has shrunk to around 0.2 pp. Similarly, for 2022, the impact is reduced to 1 pp according to
the latest projections, compared with 1.4 pp estimated at the start of the year. For 2023, the
current projections include an impact of 0.6 pp on the GDP growth rate. Depending on
whether the effective roll-out of the NGEU projects is faster or slower than anticipated, it
could have potentially significant effects on growth projections and inflation.
In addition, in the current setting of high uncertainty, a potential rise in precautionary saving
- weighing down household spending and aggregate consumption - cannot be ruled out.
Lastly, the duration and intensity of the monetary normalisation process will depend on the
persistence of the current inflationary episode, which is also surrounded by a high level of
uncertainty, as are the doubts as to the persistence of the shocks that caused it. Greater
persistence would lead to conditions tightening more than anticipated in the
macroeconomic projections, which would increase the vulnerability of those agents in a less
sound economic and financial position. This could have a stronger impact on their spending
levels than that envisaged in the current projections.
In particular, in the case of non-financial corporations, according to the findings of a recent
study by the Banco de España,15 the rise in interest rates could prompt an increase of
around 5.6 pp in the median debt burden ratio of indebted firms, assuming that short-term
debt and loans are fully refinanced.
2 The role of economic policies in the present situation
In the second part of my testimony, I would like to share with you some thoughts on what I
believe the economic policy response to the c