Brussels has raised the Spanish GDP growth forecast for this year to 5.6%, which is two tenths of a percentage point higher than the previous estimate. This would make the Spanish economy the fastest growing of the 27 EU countries, ahead of France (+5.5%). That said, the European Commission (EC) also increases the risk of business failures in the sectors most affected by the new restrictions, with the potential for increasing unemployment and cutting production capacity.
The outlook is worse for the eurozone, with aggregate GDP growth of 3.8% in 2021 versus 4.2% in the autumn estimates, due to the increase in Covid-19 cases and restrictions. However, it will rebound more strongly than expected previously, up 3.8% in both H2’2021 and 2022 versus 3%.
The EC also expects the Eurozone economy to reach its pre-health crisis level sooner than previously expected thanks to the vaccination process and the general improvement in the global economy, which should support the region’s recovery. However, the delayed start of the recovery will continue to weigh on price performance, pushing inflation to 1.4% in 2021 from 0.3% in 2020, before falling back to 1.3% in 2022.
For Link Securities analysts, these forecasts “do not have much credibility.” This is because the behaviour of Covid-19 and, therefore, the evolution of the pandemic keeps analysts, including those of the EC, always one step behind events.
“We understand that markets in the region are discounting an economic scenario similar to that reflected by the EC. However, the poor vaccination process in the region brings a very high risk that the economic recovery will be delayed in time and will not be as strong as expected by the EC in H2’2021. This is also the biggest risk we believe Eurozone equity markets face in the short/medium term.”