1 1.1  The Spanish economy: recent developments and outlook International environment  As I stated in early October before the Economic Affairs and Digital Transformation Committee in this House, the COVID-19 pandemic has prompted unprecedented disruption to economic and social dynamics both in Spain and globally. It is an event which, given its exceptional rarity and marked impact, we economists colloquially dub a “black swan”. In the first half of 2020, the health crisis and the measures to contain it caused a deep recession worldwide, which peaked last spring. Since then, economic activity has embarked on a path of recovery which, however, has proven incomplete, uneven and fragile. It is incomplete or partial because, despite the rises observed in recent months, activity and employment are still clearly down on their pre-crisis levels in virtually all countries. Uneven, not only at the international level but, in particular, from the sectoral standpoint, as some sectors of activity involving a substantially high degree of social interaction continue to be appreciably more affected than the rest. And lastly fragile because, as we have seen in recent weeks, in the absence of an effective medical solution for the virus, the intensity of the current path of recovery, and indeed its continuation, are highly dependent on how the pandemic evolves and any fresh outbreaks. As a result, global economic developments in the coming quarters are subject to very high uncertainty.
In the early phases of the upturn, output growth primarily reflected a strong increase in the number of person-hours worked partly owing to the marked increase in average working hours when sickness absence fell in 2004. A high level of inward labour migration after EU enlargement in 2004 also contributed to increasing economic capacity. Historically, there has been a close relationship between the change in prices for domestically produced goods and services and the level of capacity utilisation, here measured by the output gap. This relationship broke down in 2006. Surprisingly low inflation through 2006, despite appreciably stronger output and employment growth, may indicate that developments have been influenced by conditions on the production and supply side of the economy. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are probably several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade considerably. Prices for oil and gas, shipping, fish, industrial commodities and engineering products have increased considerably. Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer considerably cheaper consumer goods. The terms of trade have improved by about 40 per cent since 2002. A similar situation has not been seen since World War I when earnings in the shipping industry and other export industries were exceptionally high for a period. Second, an ample supply of labour has boosted output growth.