21 Feb, 2023 @ 10:07
2 mins read

What Spain Can Learn from The US Inflation Reduction Act

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As a third of the world is set to go into recession this year, Spain, like other European governments, is looking for ways to weather the financial crisis. Recently elite world leaders met at the annual Davos meeting to discuss a wide range of topics, including trade and the impact of the US Inflation Reduction Act.

US Legislation

In August 2022, US lawmakers approved the Inflation Reduction Act legislation, which includes a substantial $369 billion going towards “Energy Security and Climate Change”.

Speaking at the World Economic Forum (WEF) summit, former vice president Al Gore stated that the bill was one of the best accomplishments of the United States. Although designed to fight inflation, it is estimated that the impact this year would be a mere 0.1% reduction.

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The impact of US policy and its economy on the rest of the world, particularly Europe, was clearly demonstrated in 2022, with the US Federal Reserve hiking interest rates, resulting in the highest inflation rates seen in decades. This also significantly impacted the USD, which was the strongest it has been against other currencies in 20 years.

Some investors tried to take advantage of these significant price movements through CFD forex trading. The nature of CFD or contract for difference trading means that investors can speculate on numerous currency pairs and take a position on both price rises and falls, creating opportunities in such a volatile market as we are currently experiencing.

However, it was bad news for European countries, raising interest rates and struggling with import costs as a result. One of the most significant issues regarding the US Inflation Reduction Act was the tax credits granted for American-made electric cars, which would have a negative impact on European car manufacturers.

Although the legislation was aimed at the US’s biggest competitor China, European leaders are angry about its effects on their nations’ economies. However, Biden has reassured European nationals that any differences can be resolved in an effort to counteract threats of a transatlantic green trade war.

European Outlook

At the recent Davos conference held in the Swiss Alps, the Spanish Prime Minister spoke about Spain’s positive outlook for economic growth and job creation. In an interview at the yearly event, Prime Minister Pedro Sanchez talked about the lesson the European Union could learn from US legislation, the Inflation Reduction Act, and spoke of the need to have dialogue and reach an agreement.

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Sanchez highlighted the need for unity with the EU but also internationally in response to the global food crisis, the climate crisis, inflation, and inequality. In an effort to stay competitive, the European Commission has set out its own green-technology goals in the Net Zero Industry Act, announced by Ursula von der Leyen.

Although inflation in Spain reached 6.7% in 2022, it was, however, the country with the lowest rate compared to its EU counterparts. Spain’s GDP was up by 5% in 2022 and is predicted to grow by around 1% in 2023, which is relatively positive compared to other European nations’ outlooks.

As world leaders continue to deal with the shocks that have impacted the world economy over the past few years, one thing is apparent unity is integral to recovery and in fighting both inflation and climate change.

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