The Bank of Spain is not pessimistic, but it is cautious, about how the economy will evolve in the coming years due to the coronavirus crisis. In any case, the organism has cooled its past forecasts and fears that the recovery will slow down if a fourth wave of the virus arrives and, at the same time, vaccination is not accelerated.
It continues to handle three scenarios and in the worst of them the Spanish economy will grow only 3.2% in 2021. Of course, it estimates that the economy could take off as of June, although they estimate that tourism will not fully recover until 2022.
This is far from the forecasts announced by Brussels a month ago, which placed the Spanish boost at 5.6% and those of the OECD, which predicted 5.7% . It is also far from the IMF estimates, which put growth at 5.9%. In any case, the Bank of Spain also manages a central scenario, in which the momentum rises to 6% of GDP in 2021. In the most optimistic context, this growth would be 7.5%.
The general director of Economy and Statistics of the Bank of Spain, Óscar Arce, indicated that the months of January and February have been worse than expected in December and although he has pointed out that in March there is an “incipient” rebound in activity, This lower growth in the first quarter, together with the lower planned execution of EU funds , are behind the reduction of eight tenths of the growth forecast for this year.
“In the short term, the possibility of new outbreaks of the disease will continue to condition the evolution of economic activity,” they warn. However, the Bank of Spain recognizes that contagions seem “to be having less and less impact on activity , to the extent that restrictions are limited to contexts and situations in which they are more effective in stopping” the spread of the virus, and economic decisions are being “better adapted to the circumstances.”
Specifically, for the first quarter of the year the agency calculates a 0.9% drop in GDP in the worst case or a 0.4% growth in the most positive scenario. “In Spain, the evolution of economic activity is still highly conditioned by epidemiological developments,” they explain in the report. They add that the “moderate growth” in the fourth quarter of 2020 was precisely due to the lifting of restrictions in the face of the pandemic.
Another relevant data is that of unemployment. The worst scenario now drawn by the Bank of Spain places the unemployment rate for 2021 at 18.5%, a figure somewhat better than the 20.5% it predicted in its last analysis . In any case, in an Alagüeño context, unemployment would be around 15.9%, in line with the projections made by the IMF: the international organization considers that Spain will not reduce unemployment this year and the rate will remain around the 16.8%.
“Activity should rebound strongly from the second half of the year . As the vaccination process is completed, the lifting of restrictions and the reduction of uncertainty should give domestic spending a high dynamism,” he explains the Bank of Spain in the report.
They consider, yes, that it is better to handle different “scenarios” given the high degree of “uncertainty”. And it is that “the more unfavorable the epidemiological developments are in the future, the deeper the consequences of the crisis will be.”
Recovery will be slow. Under the central scenario, the recovery of the pre-pandemic levels of GDP would not occur until 2023 . This circumstance would come a little more than a year ahead in the mild scenario, while, in the severe scenario, the level of GDP would still remain, at the end of the projection horizon -precisely in 2023-, somewhat below that observed before the health crisis.
The Bank of Spain indicates that these forecasts are made under the assumption that the measures approved in 2020 to combat the effects of Covid-19 have increased spending by around 3.5 points of GDP (more than 35,000 million euros) and the impact for the rest of the years would be 1.4 points in 2021 (about 15,000 million) and 0.3 points in both 2022 and 2023 (more than 3,000 million).
Regarding the execution of the investments derived from the European program, the Bank of Spain now assumes a delay of one quarter in the investment expenses financed by the program. As a result, in 2021 100% of current expenses and 55% of investment expenses announced by the Government for that year are incorporated, while in the 2021-2023 horizon 80% of the total available transfers are included, both for current consumption and for investment.
And the companies?
The recovery of the business sector is another of the points analyzed in the report. Smaller companies foresee having more difficulties to be able to recover workers in ERTE or to open new markets . In addition, smaller companies plan to use comparatively more than medium and large companies to reduce investments already planned, request new lines of financing from the ICO, adjust the working day or salary of their workers and, Ultimately, the cessation of their activity, as indicated by the agency.
Finally, with regard to the intentions to attend the calls for projects financed with European funds, 19.7% of the companies surveyed declare their intention to do so, this percentage being only slightly higher for large companies (22.2% for those with more than 250 workers).
In this case, “the differences by field of activity are more pronounced, with a greater intention to opt for these competitions in the industrial branches, the hotel trade and information and communication services”, they add.
In addition, the Bank of Spain maintains that fiscal policy will accompany the economic recovery. “The escape clause provided for in the Stability and Growth Pact, which allows suspending compliance with the quantitative objectives regarding the correction of imbalances in public accounts, will remain activated until GDP recovers pre-pandemic levels “, they recall, picking up what was expressed by the European Commission.
Likewise, with a view to its reactivation, “it is expected to apply the maximum possible flexibility to take into account the potential heterogeneity between countries in their rates of recovery.”
“This will allow European countries to extend and broaden the measures approved to support companies and households during the pandemic. To these actions are added, in addition, the interventions that the Member States will be able to carry out through European funds.” Plans for access to these funds will begin to be presented in April , although that of Spain is one of the most advanced drafts.