Spain | Looking at bottlenecks under the magnifying glass

Summary

The COVID-19 crisis has severely disrupted value chains. Not only during the onset, but also in recent months. In light of this, BBVA Research has significantly revised growth forecasts downward.

Key points

• Key points:
• Global value chains enable us to maintain higher production, investment and consumption than we would otherwise have, at more affordable prices, by leveraging competitive advantages at every production stage or localisation. Production bottlenecks hurt investment and growth.
• As we are concerned about the future impact on aggregate activity and inflation in Europe and Spain and how it could alter EMU policy decisions, at BBVA Research we have developed models to estimate the aggregate cost of bottlenecks in manufacturing.
• The results show that the impact on activity was more significant than on core inflation. However, this is far from being a relief: in fact, it warns us of the potential severity of supply shocks like these.
• We have accordingly lowered the growth forecast for the Spanish economy from 7.0% to 5.5% by 2022. We highlight the downward revision for gross capital formation (-4.1pp), exports (-3.4pp), and imports (-2.5pp).

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