As expected, the 4% quarterly contraction in the Spanish economy estimated by the consensus of analysts has been overtaken by reality. GDP registered a historical collapse of 5.2% in the first quarter due to the Covid-19 crisis. Until now, the biggest quarterly fall in GDP was in the first quarter of 2009 (-2.6%).
With this sharp decline, Spain is approaching recession, since two consecutive quarters of negative growth are required for an economy to enter what is considered a technical recession. And a greater contraction in GDP in the second quarter compared to the first is a given. The period April-June will fully reflect the paralysis of numerous economic activities as a result of the state of alarm.
In the three previous quarters (second, third and fourth quarter of 2019), the Spanish economy had been growing at a rate of 0.4%. The decline of 5.2% in the first quarter of 2020 exceeded the estimates made by the Bank of Spain, which had forecast a fall of 4.7%.
In year-on-year terms, GDP in the first quarter contracted by 4.1%, compared with a rise of 1.8% in the previous quarter. This was the biggest decline since the second quarter of 2009, when the Spanish economy contracted by 4.4% year-on-year. No negative GDP data was recorded since end-2013.
Domestic demand subtracted 4.3 points from the year-on-year change in GDP in the first quarter, the largest negative contribution in seven years, and 5.6 percentage points lower than in the fourth quarter. Meanwhile, foreign demand contributed 0.2 points, three tenths less than in the previous quarter.
Finally, household consumption sank 7.5% in the quarter, while public expenditure rose at its highest rate for 12 years and investment plummeted.
The key now is whether the macro picture which the government will send to Brussels today with the forecasts of the impact of the coronavirus will soften these figures or opt for prudence. Like Spain, all the member states need to have presented their National Reform Programmes and Stability Programmes to the European Commission by 30 April. This is to enable the organisation to coordinate national economic policies.