Laurence Dollimore
SPAIN’S economy will shrink by 9.2% this year.
That’s the gloomy forecast made by the government this week, representing a significantly bleaker outlook than the -8% predicted by the IMF a at the beginning of the month.
The collapse is unprecedented, given that even in the Great Recession of 2008, GDP never fell by more than 3.8%.
But in a report sent to Brussels last night, the Spanish government believes the country will recover in the form of an ‘asymmetric V’, i.e. a sharp drop followed by a sharp rise back up.
According to the vice president of Economic Affairs Nadia Calviño, the economy will begin to recover in the second quarter of this year, ‘thanks to the gradual de-escalation plan that will open up activity.’
Speaking from Madrid today, Calviño added that 2021 is expected to see GDP grow by 6.8% (a lot more optimistic than the IMF’s 4.3% prediction).
The main cause of the collapse is the ‘great fall in domestic demand’, the minister added, as businesses have more or less been brought to a stand still for seven weeks, and right at the beginning of the vital summer season.
Meanwhile, millions of people have been furloughed or fired.
But Calviño was optimistic, commenting that ‘savings will increase greatly, both due to uncertainty and forced savings due to restrictions on mobility.’
But while household consumption grew by 1.1% last year, it will now fall by 8.8% this year.
Forecasters believe it will increase by 4.7% in 2021.
Elsewhere, private investment will see a record fall of 25.5% in 2020, before rebounding by 16.7% next year.
Spanish exports will see a 27.1% collapse this year due to a global drop in demand, while imports will follow suit, falling by 31%.
In 2021, the government hopes exports will rebound 11.6% and imports by 9.3%.
Yet all the numbers suggest the effect of coronavirus on the economy will not be recovered next year.
Tourism, too, has been hard hit thanks to domestic and international travel bans. However Calviño believes this sector will rebound the quickest once borders reopen and the price of oil stabilises.
On the employment front, the amount of jobless workers is expected to rise to 19% this year, up from the 14% achieved at the end of 2019.
Around 1.9 million jobs will be lost, of which only half are expected to be recovered in 2021, as the government predicts the unemployment rate will fall back to 17.2% next year (having been at 14% before the crisis).
At the height of the crisis caused by the 2008 crash, Spain’s unemployment rate reached 26% (in 2013).
According to the Fiscal Authority (AIReF), the predictions by the government are ‘reasonable’ but there are still many risks which could slow down a rebound. These include the possibility that the virus could get worse or return with a vengeance, damaging productivity and employment into 2021.
