Perspectives

A recovery slow in the making

nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
1
7
SPAIN  
A RECOVERY SLOW IN THE MAKING  
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.  
To face up to the protracted health crisis, the government has extended  
most of the emergency measures launched in 2020, including a  
moratorium on corporate bankruptcies (which was extended through  
to 31 December 2021) and the ERTE short-time working scheme  
GROWTH AND INFLATION (%)  
GDP Growth  
Inflation  
Forecast  
(
which currently expires on 31 May). On 12 March, the government  
Forecast  
also approved a new fiscal stimulus package totalling EUR 11 bn. It  
comprises EUR 7 bn in direct aid for companies operating in the hardest  
5.9  
5.6  
7
2
1
hit sectors and regions , EUR 3 bn for corporate debt restructuring, and  
2.0  
1.3  
1.2  
0.8  
EUR 1 bn for any capital injections that might be needed. The ongoing  
pandemic – and its economic consequences – will certainly drive public  
spending above the government’s initial targets. The government has  
formalised a record-high budget of EUR 239.8 bn for 2021. According  
to the Bank of Spain’s central scenario, the public deficit is estimated  
at 7.7% of GDP this year, after peaking at an all-time high of 10.1% of  
GDP in 2020.  
-
0.3  
-3  
-
8
-
10.8  
-
13  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
LIMITED HOPES  
CHART 1  
There are nonetheless good reasons to hope for a more significant  
rebound in economic growth this spring or more certainly by this  
summer. The number of new Covid-19 cases in Spain has dropped  
sharply, even though the pandemic’s curve has begun to rise slightly  
again since the end of March. The vaccination campaign is progressing,  
albeit at a sluggish pace. On 29 March, nearly 16% of the population had  
received their first dose of the vaccine. As a result, Spain ranks among  
the European countries with the highest vaccine coverage, even though  
it remains far below the vaccination rates reported in the United States  
and the United Kingdom. Nonetheless, Prime Minister Pedro Sanchez  
announced that the number of doses would quadruple in Q2, which  
should in theory lead to a rapid acceleration of vaccinations. For the  
moment, the government is maintaining its target of vaccinating 70%  
of population by the end of summer, even though vaccine supply may  
remain a major obstacle in the months ahead.  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
SERVICES PMI  
9
0
Current business activity  
Expectations next 12-month  
80  
70  
60  
50  
40  
30  
The gradual easing of restrictive measures should trigger a significant  
rebound in economic activity. In any case, this is what some confidence  
indicators are suggesting, notably the PMIs for the services sector,  
which have improved sharply this winter (see chart 2). During the first  
reopening phase in May 2020, economic activity recovered rapidly, with  
real GDP growing 16.4% q/q in Q3. The global economic environment is  
also more promising than it was last summer, particularly in the United  
States and Asia. This should bolster Spanish merchandise exports to  
these regions, although Spain does not stand to benefit as much from  
this trade as its European neighbours (see box, next page).  
20  
10  
0
06  
07 08 09 10 11 12 13 14 15 16 17 18 19 20  
CHART 2  
SOURCE: MARKIT, REFINITIV  
Equity market trends seem to confirm this sentiment. At the end of  
March, Ibex, the Spanish equity market index, was still fluctuating  
about 15% below pre-crisis levels. In contrast, France’s CAC 40 and  
Italy’s FTSE MIB had made much more progress in closing the gap,  
while Germany’s Dax had already reached new record highs as of mid  
March.  
2
As we explained in a previous EcoFlash , Spain’s economic structure  
(
with a focus on services and tourism) and an industrial fabric  
composed mainly of SMEs and precarious job contracts) suggests that  
the Covid-19 pandemic could have a bigger impact on growth in the  
medium term compared to the three other big European countries.  
1
2
Aid will be available in 95 sectors. Moreover, EUR 2 bn will be allocated exclusively to the Balearic and Canary Islands, two regions hard hit economically by the Covid-19 crisis.  
See BNP Paribas EcoFlash, Eurozone: Four countries, four ways to recover, 20 May 2020  
The bank  
for a changing  
world  
nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
1
8
WILL INFLATION REBOUND THIS SPRING?  
WILL SPAIN’S DEPENDENCE ON THE EUROPEAN COMMON MARKET  
HAMPER ITS RECOVERY?  
Sluggish growth in the early part of 2021 has limited the rebound  
in consumer prices, unlike the situation in most of the other major  
European countries. In the Eurozone, the harmonised index of consumer  
prices (HICP) rebounded 0.7% between December and February, but  
in Spain it declined 0.8% over the same period (Eurostat). On a year-  
on-year basis, Spanish HICP even slipped back into negative territory  
in February. The only notable rebound was for energy prices, and by  
extension, transport prices, which followed the rise in commodity  
prices during the winter. Yet we cannot rule out the possibility of an  
upturn in inflation this spring. Bottlenecks in global supply chains  
Although tourism accounts for a major part of Spain’s “external” revenue,  
merchandise exports are still a very important sector and its economic  
weight has continued to increase over the years. Goods exports as a  
share of GDP have gradually increased, to 24.1% in 2020, compared to  
only 18.5% in 2007, just before the global financial crisis (IMF data). Note  
that the pandemic did not have a notable impact on the share of exports  
compared to 2019.  
This trend was accompanied by a greater concentration of Spanish  
exports on EU destinations, and France in particular. Inversely, for  
Germany, France and Italy, the share of exports to the EU has remained  
generally stable, and historically it has been much lower than in Spain  
(
visible notably in PMI surveys) could eventually trigger an acceleration  
in Spanish inflation. Another upside risk factor for inflation is a strong  
rebound in economic activity from Q2 onwards.  
(
see table below). As a result, Spain should benefit relatively less from  
the rebound in activity and stronger demand from the United States and  
China. By extension, Spain risks being hit economically harder by the  
delayed rollout of vaccination campaigns, which means a belated lifting  
of business restrictions within the EU.  
RECOVERY PLAN: MADRID STEPS UP THE PACE  
In the weeks ahead, the government will finalise and deliver its national  
recovery plan (‘The Recovery, Transformation and Resilience Plan’) to  
the European Commission. Spain’s executive branch intends to submit  
its plan to Brussels by mid-April, two weeks ahead of the deadline  
imposed by the European Commission. Yet the first allocations via the  
Next Generation EU funds are unlikely to occur before the second half  
of 2021. To accelerate the process, the Spanish government plans to  
issue government bonds that will be reimbursed once the EU transfers  
have been completed. Spain’s recovery plan, which must comply with  
the European Commission’s guidelines, will have nearly two thirds of  
investments geared towards the ecological and digital transitions.  
Spain Germany France Italy  
Share of world exports in 2020 (%):  
1.8  
7.9  
2.9  
2.9  
Share of national exports towards:  
United States  
China  
4.6  
8.8  
8.0  
9.6  
2.7  
7.6  
4.1  
2.8  
Japan  
0.9  
1.5  
1.4  
1.6  
Yet one of the major challenges facing the Spanish authorities is to  
transform these “theoretical” allocations into concrete investments.  
Indeed, Spain has a poor track record when it comes to the utilisation  
of European structural funds. Under the previous European multi-year  
budget for the period 2014-2020 (ESIF), Spain used only 40% of the  
allocated funds, which was the second lowest absorption rate after  
Croatia.  
Lastly, against the backdrop of the health crisis, this spring’s main  
political event will be the early regional elections to be held in Madrid  
on 4 May. Pablo Iglesias, Deputy Prime Minister of Spain and leader of  
the Podemos party, has announced his candidature to be the region’s  
president. To run for this election, he resigned as Deputy Prime Minister  
and was replaced by the Minister of Economic Affairs Nadia Calviño.  
The leader of Podemos will be facing Isabel Diaz Ayuso, the incumbent  
president and member of the People’s Party. Madrid’s election follows  
on the heels of February’s regional election in Catalonia, which ended  
up strengthening the region’s separatist parties. As has been the case  
for several years, Spain’s political situation is an underlying risk that  
only compounds the country’s currently severe economic difficulties,  
which are bound to worsen with the Covid-19 crisis.  
EU  
59.7  
52.6  
52.5  
36.8  
52.4  
45.6  
50.8  
41.0  
Eurozone  
United Kingdom  
6.7  
5.7  
6.6  
5.2  
Asia (ex-China and "advanced" countries*)  
1.4  
2.5  
3.0  
2.3  
Middle-East  
Africa  
2.6  
2.0  
3.5  
3.7  
5.4  
1.4  
4.7  
2.7  
Other destinations  
16.1  
17.9  
16.2  
21.1  
*
Advanced Asian countries (IMF classification): Australia, Hong Kong SAR, Japan, Korea, New  
Zealand, Singapore, and Taiwan  
SOURCE: IMF DIRECTION OF TRADE STATISTICS  
Completed on 31 March 2021  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2732 articles et 723 vidéos