Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)
economic-research.bnpparibas.com
1
6
SPAIN
FISCAL COMPROMISES ARE INEVITABLE
The Spanish economy registered a record contraction of 22.7% in the first half of 2020. With the public deficit li-
kely 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 has been Eurozone’s hardest hit economy by the Covid-19 crisis.
Real GDP plunged by 18.5% in the second quarter of 2020. There
were significant declines in all components of demand (consumption,
investment and exports). We now expect GDP to shrink by 13.0% in
GROWTH AND INFLATION (%)
GDP Growth
Forecast
Inflation
2
020, before growing by 5.0% in 2021.
Forecast
1
0
5
0
Local lockdowns have been introduced in several areas – and in
particular in Madrid – in an attempt to halt a surge in new cases in
the country. The worsening situation could hold back the economic
recovery over the coming months, although the current situation is, for
now, not as bad as in February-March. The Purchasing Managers index
5
.0
2
.4
2
.0
1.7
0.6
-0.3
-0.3
(
PMI) slipped back into contractionary territory in August (composite
-5
10
15
index of 48.4).
-
-
INDUSTRY ‘DRIVING’ THE RECOVERY
-13.0
2020
2018
2019
2021
2018
2019
2020
2021
Nevertheless, the industrial sector has turned higher over the
summer, led by a rebound in consumer goods and more particularly
durable goods. In July, car sales climbed back above their level at
the start of the year, before dipping in August. The introduction of the
government’s Renove 2020 scheme – a programme offering subsidies
for the purchase of cleaner vehicles – has stimulated demand. By July,
industrial production was only 3.5% below its pre-crisis levels.
CHART 1
SOURCE: BNP PARIBAS GLOBAL MARKETS
PMI INDEX AND EMPLOYMENT
Employment*, annual change
PMI composite employment (RHS)
60
This recovery in consumer goods has occurred elsewhere in Europe
1 200
(
France and Italy for example). This resulted in a stronger demand
5
5
for Spanish exporters. The trade balance improved significantly as a
result, posting a surplus in June (EUR 746.9 million), for the first time
700
200
50
1
since the current data series began . However, this increase only par-
45
tially compensate for the loss in revenue from tourism activity, which
caused a sharp deterioration in the balance on services. The current
account thus deteriorated this summer.
-300
40
3
5
0
-
800
The Spanish economy remains more structurally exposed to the
current crisis than its European neighbours, as it is more dependent
on non-tradable services (retail, construction, hotels and restaurants)
3
-
-
1 300
1 800
25
20
2
* Number of workers affiliated to social security
and SMEs . These activities have been hit harder by public health
restrictions and the fall in tourism. The latter struggled to recover over
the summer. In July, the hotel occupancy rate was 35.6%, half of July’s
0
0 12 02 03 04 05 05 06 07 08 08 09 10 11 11 12 13 14 14 15 16 17 17 18 19 20
2
019 level (71.7%).
CHART 2
SOURCE: MARKIT, BNP PARIBAS
It is still too early to assess the full impact of the crisis on the
labour market. The unemployment rate climbed to 15.8% in July and
Young workers have been heavily impacted by the crisis, due to the
more precarious nature of their employment status (short-term,
seasonal, temporary work). The jobless rate for the 15–24 age group
has increased by more than 10 points this year, reaching 41.7% in July.
Youth unemployment remains nearly fifteen points below its 2013
3
employment in August remained 3.5% below February’s level . However,
we have seen a gradual, albeit modest, pick up in employment growth
since the easing in lockdown restrictions in May. The PMI data suggest
that the recovery in employment will continue in the coming months
(
see Chart 2). This trend is of course fragile and dependent on the
4
peak . Nevertheless, the reincorporation of this category into the
evolution of the epidemic over the coming weeks and months.
labour market will remain a key challenge for the Spanish authorities
going forward.
1
2
3
4
January 1985 Seasonally-adjusted data
For more details, please see BNP Paribas EcoFlash Euro zone: Four countries, four ways to recover, 20 May 2020.
Spanish employment agency (SEPE). More precisely, this figure represents the number of workers affiliated with the social security system.
55.9% in July 2013
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for a changing
world