The ratio of non-performing loans (NPLs) at Spanish specialised credit institutions (consumer credit, mortgages, leasing and factoring[1]) hit 6.9% in January 2022, its highest January level since 2016. Conversely, the NPL ratio for commercial banks, savings banks and cooperative banks[2] stabilised at 4.2%, its lowest level since March 2009.The increase in the NPL ratio of specialised credit institutions was due to a faster rise in the outstanding amounts of NPLs than in total loans (8.7% and 2.0% respectively between January 2021 and January 2022). Meanwhile, the fall in the outstanding amounts of NPLs at the banks, that began in 2014, has continued, against a background of stable total loans (-5.5% and -0.2% respectively between January 2021 and January 2022)
As shown on our Pulse, the sharp increase in inflation has continued in January, with the harmonised index of consumer prices (HICP) up 6.1% y/y in January. Although the details of last month’s inflation have not yet been revealed, energy prices should remain, unsurprisingly, the main driver of higher consumer prices. The energy element of the HICP recorded a jump of 40.2% y/y in December 2021, whilst the sector’s production prices nearly doubled (+95.9% y/y) between December 2020 and December 2021.
The fairly substantial upgrade to Spain’s Q3 GDP figures underlined again the problems that the Spanish statistical office (INE) is currently facing when collecting data. To recap, third-quarter growth was revised up from 2.0% q/q to 2.6% q/q and this follows a large downgrade for Q2, from 2.8% q/q to 1.1% q/q. Employment will remain in the spotlight in 2022, since it offers a parallel measurement of economic activity and one that is currently more accurate than GDP.
Despite a substantial increase in new Covid-19 infections since the start of November, the infection rate is currently below those in France or Germany. Meanwhile, concerns about the health situation have had little effect on business confidence so far: the PMI Composite index improved in November (up 1.9 points to 58.3) thanks to better prospects in services. The positive trend in this sector can also be seen in the European Commission survey, which reveals levels of optimism not seen for twenty years. This said, household confidence has fallen back, mainly due to fears of rising consumer prices.
Despite a rather weak recovery in GDP, the Spanish economy has been much more resilient on the labour market front in 2021. Employment (November) and the participation rate (Q3) are at record levels. Inflation will be one of the biggest obstacles in 2022, the increase in production prices having accelerated markedly this autumn. Support for growth will remain a government priority in 2022. The country will benefit from a larger transfer of European funds that will help finance a record budget of EUR196 billion. The reduction in the government deficit will be again pushed into the background, the authorities mainly betting on economic growth to reduce the deficit-to-GDP ratio.
Like other economies, Spain is currently facing several headwinds, including labour shortages, supply-chain problems and inflation. The country is now also facing the risk of another upsurge in the pandemic. In mid-November, the number of Covid-19 cases was still holding at a very moderate level, but it now seems to be ticking upward, a movement that is bound to accelerate with the approach of winter. Even so, Spain benefits from a high vaccine coverage ratio (more than 80% of the population is fully covered by the vaccine), meaning that the country can look forward to a less perilous winter than last year.
Employment in Spain continues to pleasantly surprise this autumn. The number of employees affiliated with the social security system increased in October (+102,474), reaching a record level of 19,662,163. Significant numbers of jobs created were recorded in sectors that have partly "benefited" from the health crisis and the structural changes it has caused or amplified (information and communications, health and social care, logistics and transport). The unemployment rate remained high (14.6% in September), as did underemployment (7.4% of the total working population), but the participation rate for 16 to 64-year-olds was at a historically-high level (75.8% in Q3 2021). While the first GDP estimate for Q3 2021 was disappointing overall (+2.0% q/q after an increase of just 1
The sections of our Pulse on industrial production and retail sales deteriorated significantly. This mainly reflects base effects linked to the catch-up in activity in the first half of 2021. In the coming months, household spending could be held back by the rise in energy prices, which shows no sign of slowing down, and possibly also by lengthening delivery times for certain products.
After the disappointing economic growth reported in H1 2021, Spain should record a robust rebound in activity in H2, assuming the health situation does not deteriorate. The inflow of tourists has picked up (but remains historically low) and employment has recovered. Yet inflationary risks are intensifying. With the surge in energy prices, the government was forced to take drastic measures to reduce the energy bill for households, which will weigh on public finances. Faced with a persistently uncertain environment, the government is bound to maintain an expansionist policy when it unveils its 2022 budget this fall, even though the health situation is more favourable for the moment thanks to the high level of vaccinations
In Spain, like in most Western countries, the 2008 crisis caused an unprecedented drop in industrial employment, the pain of which continues to be felt. In fact, there are almost 500,000 fewer manufacturing jobs than in 2008. Some of this decline, however, reflects an increasingly important shift from industrial firms to service offerings, which is not a bad thing. With the Covid-19 crisis and the EUR 69.5 billion Recovery and Resilience Plan (RRP), which will be rolled out over the next five years, strengthening industry in Spain has once again become an important area of focus for the authorities. A quarter of the RRP will therefore be dedicated to this objective
The Spanish economy has put in a solid performance over the summer, with a marked improvement in the employment data. The number of workers registered with the Social Security system has risen by more than 410,000 over the past three months, and now nearly match the pre-Covid level. The unemployment rate is likely to fall again in Q3 as a result. It already dipped to 14.3% in July, not far from the pre-pandemic low of 13.7%. Given that a significant share of the new hires were seasonal contracts, we will have to wait for this autumn’s employment figures to get a more accurate picture of the strength of the recovery.
Once again, Spain has become an epicentre of the Covid-19 pandemic in Europe after new cases of the Delta variant spiked, especially in Catalonia. The number of new contaminations could rapidly surpass the peaks reached during previous waves of the pandemic. The days and weeks ahead will tell whether the vaccination campaign is paying off – more than 50% of the population is now fully vaccinated (2 doses) – and whether the authorities can limit the reintroduction of health measures that restrict economic activity.
Just when the lights seemed to be turning green on the health front, the spread of the Delta variant in Spain, as elsewhere in Europe, is a cause of concern. The risks remain currently under control and economic activity should record a significant upturn this summer. The easing of travel restrictions and the introduction of the European health pass since 25 June should allow the Spanish tourist industry to lift itself back up, which would have positive knock-on effects on consumption and employment. Even so, and despite the fact that growth is expected to bounce back strongly, to 6.0% in 2021, the Covid-19 will continue to leave its mark on Spain’s public finances
The latest economic figures from Spain have shown so far a substantial gap between the very positive signals from opinion surveys and the hard data, particularly on consumption, where a significant rebound has yet to materialise.
After disappointing Q1 GDP figures – which showed the economy contracting again, by 0.5% q/q – the second quarter should bring the start of the much-anticipated recovery in Spain. The improvement in the Covid-19 situation is continuing to have a knock-on effect on business and consumer confidence, which brightened again in April, as shown by our pulse.
The barometer improved in March, driven by the manufacturing sector, where growth continues to pick up strongly. According to the purchasing managers index (PMI), confidence in the Spanish manufacturing sector has increased to 56.9, the highest level in more than 14 years.
Economic growth remains extremely fragile in early 2021. In addition to the Covid-19 pandemic, Spain was hit by Storm Filomena in early January, which has had a direct negative impact, notably on consumption: both automobile and retail sales plummeted this winter. We now expect GDP growth to be flat in Q1. Even so, the economy could rebound strongly either this spring or more certainly by summer, although we cannot completely rule out the downside risks associated with the UK variant and a possible fourth wave of the coronavirus in Spain. We are forecasting real GDP growth of 5.9% in 2021 and 5.6% in 2022, following a record contraction of 10.8% in 2020.
Although our barometer generally improved in March, economic growth is set to remain weak in the first quarter of 2021. New car sales were still 40% lower in February 2021 than in February 2020, although the data can be volatile from a month to another...
Elections polls point towards a breakthrough by the Socialist Party and the far right to the detriment of the centre-right Ciudadanos party. Although political risks continue to persist in Catalonia today, the economic downturn caused by the Covid-19 crisis could weaken the momentum for the pro-independence movement and increase support for the Central Government. The Covid-19 crisis has accentuated Catalonia’s dependence on the Central Administration and Europe more broadly.
Spain’s health situation is still alarming. The pandemic continues to spread, forcing the public authorities to tighten restrictive measures, notably in the Madrid and Valencia regions. Yet the most recent confidence indicators have shown a certain resilience in January, notably the European Commission economic sentiment index.
Strong fiscal support is currently key to limit the impact of the coronavirus shock on growth and employment. But in the long term, the question of public finances control will be asked. In its November forecast, the European Commission predicts that Spain’s structural public deficit will widen to 7.2% of GDP in 2022. This would be the biggest deficit since 2010 – 2009 being a record high – and the largest within the Eurozone. Spain will not stabilise its primary structural deficit, which could surpass 5% of GDP by 2022. Nevertheless, the impact on public expenditures will be softened by low sovereign rates
Forecasts made at the start of the year will probably turn out to be accurate. Spain is set to be the Eurozone’s economy hardest hit by the Covid-19 epidemic. We forecast GDP to shrink by 11.8% in 2020 before rebounding by 7.0% in 2021. The social situation has worsened again this year, forcing the government to introduce new large-scale welfare benefits (e.g. minimum living income), which will be reinforced in 2021. Spain’s huge €140 billion stimulus plan will support the recovery, should raise the country’s potential growth and create jobs. But the structural budget deficit is widening
The barometer provides a perfect illustration of the diverging trend observed between manufacturing and services activities. On average over the past three months, the manufacturing purchasing managers’ index (PMI) index has moved above its long-term average, while the indicator for services remains well below this trend...
The economic recovery slowed down in September. That said, and as clearly shown on our barometer, the 3-month trend has continued to improve for most indicators – a logical process with the catching-up effect during the summer period...
The Spanish economy registered a record contraction of 22.7% in the first half of 2020. With the public deficit likely to rise above 10% of GDP this year, the government faces some difficult decisions, notably on the terms and conditions of its temporary layoff scheme (ERTE). The recovery in industrial production since the easing in lockdown restrictions in May is encouraging. However, this only partially compensate for the slow pick-up in activity in other sectors. The final quarter of 2020 will be a pivotal moment. A substantial programme of support for employment and investment (under the recovery package announced this autumn) is needed, while narrowing down support more specifically towards the sectors lastingly affected by the crisis.
Spain is a constitutional monarchy with a Prime Minister and a monarch. It is the fourth largest economy in the Eurozone.
On joining the euro, the country experienced a very strong, albeit largely unbalanced, period of economic expansion. Fuelled by the booming construction sector and surging house prices, funded by external debt. The 2008 financial crisis precipitated the burst of the housing bubble which in turn led to an economic and banking crisis.
Spain emerged from the 2008 financial crisis after a long and painful process to reform the labour market and rebalance the economy towards export-oriented sectors. Its banking sector has been restructured and recapitalised. Gains in cost-competitiveness have allowed Spain to increase its market share both inside and outside the Eurozone. The country experienced solid growth in years preceding the Covid-19 pandemic, averaging 2.6% (2015-2019).
Important structural weaknesses persist, and in particular the low of level of investment and productivity, which are among the lowest in Europe. This hinders the growth potential of the economy and limit the number of job creation in the long run. The slump in activity and the countercyclical policies put in place to deal with the coronavirus shock has caused a sharp increase in the public deficit.
