Take 5 and come back tomorrow (30/10/24) Markets Budget GDP Taxes Employment

None of what follows is investment advice.

Market environment: Curves ahead – (Asia-Pacific markets fell with European markets also down and US futures up) – Asia-Pacific markets fell with investors cautious ahead of the US election and with doubts regarding the Chinese stimulus plan. European markets were down with US futures up.

Response to the crisis: Trying to remain flexible – (The Government does not comply with the new EU deadline to send its budget plan (El Economista p26) -The problem is that the Government was meant to send its long-term fiscal plan together with a budget draft backing it. Without the budget draft the credibility of the long-term fiscal plan is logically in doubt. If the Government cannot show that it is able to deliver in the short-term, it is more difficult to believe that it will in the long-term. And it is not able to deliver even a draft budget, given that this would restrict its flexibility to negotiate the support it needs for approval in Parliament. The way things are going in Spanish politics, there may be more delays ahead.? This said, Spain is doing quite well without a budget.

GDP: Always look on the bright side of things – (Spanish growth soars as Eurozone stumbles (FT) – The article in the FT got a lot of exposure due to claims that Spain was set to overtake the US to become the world’s fastest-growing major advanced economy this year. Given recent upgrades to GDP growth estimates this is credible, although we are still talking about c.3% growth. This said, the criticism about the good performance being due to immigration (less positive GDP per capita performance), tourism, foreign investment and public spending also have merit. Spain’s problem remains one of low productivity. Then, there is also the suspicion that after recent negative takes on Spain’s political scene, the FT wanted to even things out.

Taxes: Tinkering with the formula – (The Government will adjust the tax on energy companies and banks to take into account investment in renewables and the level of interest rates (Expansion p30) – The Government is having trouble finding enough support to make the taxes permanent. This is partly due to strong lobbying by the sectors involved, especially toward regional parties whose votes are needed. The Government is trying to find ways to make the tax more palatable by ensuring that it does not discourage investment and/or lending. Whether it finds the right approach remains to be seen.

Employment: Micromanaging the problem – (The Ministry of Labour offers direct subsidies to micro companies in order to favour the reduction of the working week (Expansion p31) – The idea seems to be to try to help the micro companies (up to 5 workers) to improve their productivity, lessening the impact of a cut in the working week from 40 hours to 37.5, without the equivalent pay adjustment. This represents another example of the Government trying to micromanage the problem at the public purse’s expense. I doubt that €6,000 will be enough to offset the additional cost implied by the working hour reduction in these micro companies, given their lack of flexibility.