Soaring electricity prices threaten Spain’s recovery

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  • Spain is particularly exposed to soaring gas prices
  • Has a high share of customers with flexible rates
  • Small businesses have seen their electricity bills double
  • Bills could drain € 20 billion in consumer savings

MADRID, September 23 (Reuters) – Soaring natural gas prices in Europe could hamper economic recovery in Spain, where small businesses crucial to local employment are more exposed than elsewhere on the continent to sharply rising bills electricity.

Energy bills have more than doubled in Spain and other European countries as gas prices skyrocket due to factors such as low storage stocks, plunging businesses into crisis and forcing governments to take steps to cushion the blow. Read more

The fallout from record-breaking gas prices has hit even food producers as suppliers of carbon dioxide – used in the vacuum packaging of food products to extend shelf life and to spice up beer and non-drinkable beverages. alcoholic – seize up. Read more

Spain is particularly vulnerable to soaring household fuel bills due to a high share of customers with flexible tariffs, which are sensitive to price movements, analysts said.

Small businesses, which account for 61.3% of Spanish economic activity and 71.9% of total employment, suffer particularly.

Less able than big companies to withstand high prices, they say they are struggling to invest in rehire and expansion as the economy emerges from the COVID-19 pandemic which has seen gross domestic product decline by an historic 10.8% in 2020.

“We can barely cover the expenses,” said Mayra Maldonado, 41, who runs a historic dry cleaning store in central Madrid with her partner, Gladys Mariscal.

“In pre-COVID August, we had a turnover of 6,000 euros and about 600 euros in electricity bill. In August, we made 3,000 euros and we paid 1,050 euros for electricity.”

Maldonado went through a heatwave in August when the temperature steadily rose above 40 degrees Celsius with virtually no air conditioning in an attempt to reduce bills for a business needing electrical appliances during peak hours.

After working as an employee for 15 years, she took over the company in March 2020, a few days before the first major confinement was imposed.

“We have a turnover of 40% of what this dry cleaning did, the remote work affected us a lot.”

POTENTIAL SAVINGS DRAINING

A steam engine light is turned on as Gladys Mariscal Medina ironed while working in the laundry she helps run in Madrid, Spain on September 21, 2021. REUTERS / Susana Vera

Recent indicators have pointed to a solid recovery in the economy, as high vaccination rates have supported activity and tourists have flocked to sunny destinations over the summer. The government expects the economy to rebound to pre-pandemic levels by the end of 2021. read more

However, the recovery so far has been heavily reliant on spending by consumers who now face 35% annual increases in their electricity bills.

This could drain 20 billion euros in savings for households and small businesses, according to estimates by Raymond Torres, chief economist of the Funcas think tank.

“The impact of the rise in electricity comes after a terrible crisis. It is not the same to bear these costs now as in 2019,” said Luis Aribayos, general secretary of the Spanish association of small and medium enterprises.

The Bank of Spain, in line with the European Central Bank, said the rise is temporary and will not affect the economy. But analysts believe that even transient, it will erode profit margins and competitiveness.

“Small businesses have had to empty their coffers and go into debt. They can’t take it anymore,” Aribyo said.

The government last week approved a contingency plan to ease price hikes, cut taxes and cap gasoline, so it doesn’t recoup all the surge in wholesale markets.

Italy and Greece are in a similar situation and are looking for Spanish-style solutions to prevent sudden price hikes from hitting consumers’ pockets. Britain is also considering backing energy companies and has warned more of its energy suppliers may be forced to shut down. Read more

For now, Spanish companies – which could see the impact of the government’s balm in future invoices – have decided to absorb these increases and not pass them on to their customers, thus slowing the inflationary spiral.

“The prices cannot be touched, they cannot be increased. If you increase by 50 cents, the customer leaves. But for us, the increase in electricity is much more important. We did not touch the award for five years, ”said Maldonado. .

Torres estimates that inflation will hit 4.5% by the end of the year, the highest in more than a decade, and said that although transitory, the impact on the recovery will have a negative impact.

“The price increase is more pronounced in Spain than in Italy and France, even exceeding inflation in the euro zone and this is not a positive element for our competitiveness,” said Alicia Coronil, chief economist at Singular Bank, also warning of a deterioration in consumption. feeling.

Report by Belén Carreño; Editing by Emelia Sithole-Matarise

Our standards: Thomson Reuters Trust Principles.


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