st
Eco Perspectives // 1 quarter 2021
economic-research.bnpparibas.com
1
7
SPAIN
A FISCAL STIMULUS MONITORED CLOSELY BY BRUSSELS
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 EUR 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. Once the Covid-19 crisis is over and the recovery underway, Brussels will intensify the pressure
on the Government to speed up certain key reforms, and in particular regarding the country’s pension system.
In all likelihood, the Spanish economy will contract again in the fourth
GROWTH AND INFLATION (%)
quarter of 2020. Although the second wave of Covid-19 has been
receding rapidly since its peak in mid-November, restrictions on activity
have remained – until mid-December at least – severe and among the
most stringent in Europe. Despite the sizeable rebound in activity in Q3
GDP Growth
Inflation
Forecast
Forecast
7
.0
(
+16.7% q/q, non-annualised), Spanish GDP was still 9% below its end-
019 level, a recovery comparatively smaller than in other European
4
.9
6
1
2
1
2.0
countries. Breaking down the figures by expenditures, the recovery in
service exports had unsurprisingly been the weakest (43.6% below the
Q4 2019 level) – pulled down by the slump in tourism activity. Gross
fixed capital formation and households spending were down 11.1% and
0
.8
0.9
0
.4
-
0.4
-4
-9
14
1
0.5%, respectively. However, within household consumption, spending
on durable goods had rebounded rapidly, rising above its Q4 2019
2
level.
-
-11.8
2020
For sure, job-protection measures – mainly the ERTE temporary
unemployment scheme – have significantly cushioned the shock on
the labour market, particularly in the service sector. According to the
2019
2021
2022
2019
2020
2021
2022
3
Spanish Employment Office (SEPE) , the number of workers affiliated
CHART 1
SOURCE: BNP PARIBAS GLOBAL MARKETS
to the social security system was 2.2% lower in November than in
4
February in the industry, and 2.6% lower in services. Comparing these
figures with the larger declines in GDP, we see that the government’s
measures to protect jobs are having a positive effect, although this
comes at a high cost for the public finances. According to the labour
ministry, 746,900 workers were covered by a ERTE in November. The
ERTE scheme has been extended until 31 January, which should limit
the increase in unemployment until then. The unemployment rate was
GOVERNMENT PRIMARY STRUCTURAL BALANCE (% GDP)
3
2
1
0
1
6.2% in October.
FISCAL CONSOLIDATION PUSHED BACK UNTIL 2022 AT -1
-
-
-
2
3
4
THE EARLIEST
Spain’s fiscal policy will therefore remain highly expansionary in 2021.
The 2021 budget, which was approved by parliament in late November,
will amount to a record of EUR239 billion. Key welfare measures put
forward by coalition partner Podemos will be reinforced; this is the case
of the minimum living income (IMV), for which a further EUR3 bn will
be allocated (see box). However, investment accounts for the largest
increase in the budget, with significantly greater spending on R&D,
apprenticeships and vocational training, as well as the modernisation
of public infrastructure. On the revenue side, new taxes on high-
earners will be introduced. The budget will also be partly funded by
EUR 27 billion of subsidies granted by the European Commission to
Spain in 2021 as part of the EU recovery fund (Next Generation EU).
-5
-
6
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
CHART 2
SOURCE: AMECO
This record budget has been built in line with the rapid implementation
of Spain’s large-scale EUR 140 billion national recovery plan (the
Recovery, Transformation and Resilience plan”) for 2021-2026. With
“
this plan, the government is hoping to generate around 800,000 jobs
by 2023 and boost GDP growth by 2.5 percentage points over the same
period, by investing massively in the ecological and digital transitions.
Half of the spending (EUR 72 bn) is due to take place in the next three
years.
1
For a comparison of recovery rates, see H. Baudchon and L. Boisset, Eurozone: from
rebound to relapse, BNP Paribas Ecoflash, 4 November 2020.
2
A large part of the increase can be traced to automobile sales, which bounced back
thanks to the government’s decision in June to offer subsidies for the purchase of cleaner
vehicles (Renove 2020 programme).
3
4
Seasonally-adjusted figures.
Employment in the construction industry was only 1.1% lower than the February level.
The bank
for a changing
world