The real scope of a latent crisis

After the summer bubble, in theory we are already installed in a new hot autumn and at the gates of an economic crisis caused, among others, by the significant increase in energy prices and inflation.

Thomas Osborne
Thomas Osborne
13 October 2022 Thursday 01:45
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The real scope of a latent crisis

After the summer bubble, in theory we are already installed in a new hot autumn and at the gates of an economic crisis caused, among others, by the significant increase in energy prices and inflation. A crisis announced for months, but without us being able to elucidate, for the moment, neither its depth nor its scope. It is true that the economy is cyclical and that after periods of prosperity come other periods of crisis. And backwards. This is what we were used to. Today there are geopolitical variables that directly influence the economy and that make it much more difficult for us to predict its variables.

The conflict between Russia and the West over the Russian invasion of Ukraine represents a new economic disturbance on a global scale and a blow to growth. Runaway inflation has become another serious obstacle after the two crises with which the system has collided in just two years: one due to health and the other due to war.

The increase in the energy tariff –oil and gas– is bad news for the European economy, because it has a direct impact on the purchasing power of families and, therefore, on their consumption. It is true that inflation tends to be higher in periods of upturn in growth and recovery in demand, a scenario that could be glimpsed a few months ago. But the continued rise in energy prices and now in interest rates becomes a clear threat to growth, due to its real impact on consumer income, which will be reflected in a slowdown in private consumption.

I have never been pessimistic in the face of crises. I am one of those who believe that they represent a challenge and an opportunity and that we must take measures to try to emerge stronger from them. The Principality of Andorra is the best example I know of. In just a few years, the country has had to take on multiple challenges, and so has its banking system. It has done what it should by standardizing its practices with Europe and has seen an opportunity to expand internationally. It has known how to promote economic activity, attracting investors and promoting public-private collaboration in an environment of low tax pressure, essential today to be attractive for business implementation.

Today we are in a better position and more prepared than before the 2008-2010 crisis. It is true that the country still has many tasks to accomplish, such as rethinking its tourism model to focus more on quality than quantity. And make it sustainable all year round, with snow and mountains as the cornerstone. There is a long way to go.

To overcome this energy crisis, we must move towards a system different from the current one that guarantees aspects of security, equality and sustainability. And that, in particular, restore consumer confidence. The European reference indicator in this matter, prepared by the European Commission, has shown this year its second largest setback in the historical series –which began in 1986–, only surpassed by that registered at the start of the pandemic. Confidence has been in decline for a long time, on many levels, and we must all make efforts to recover it.