Spain: Expecting The Unexpected

BBVA Research | Economists are getting used to expecting the unexpected. The unprecedented fall in Spain’s GDP—seen during the first half of the year—was followed by one of the highest growth rates ever recorded.

Key points

This variability in GDP aside, the reason behind this fluctuation is a cause for concern: the uncertainty triggered by the deterioration of health indicators as a result of COVID-19.

In the third quarter of the year, quarterly GDP growth was around 14%. The unusual extent of the growth seen during the recovery is mirrored by the atypical way in which it has taken shape.

Growth is expected to return to more ‘normal’ levels in the fourth quarter, i.e. about 2%. While this rate is high in comparison with any quarter in Spain’s recent history, it indicates a sharp slowdown.

BBVA’s credit card expenditure data suggests that spending has fallen by almost 15% in provinces with higher cumulative incidence of COVID-19, compared to the same week last year. This is in contrast to the increases of 2.5% seen in mid-August and the increases of 5% currently being seen in the rest of the provinces.

While the first half of the year saw a significant injection of public funds to safeguard employment and household incomes, this has slowed as a large number of workers can no longer benefit from Temporary Redundancy Plans (ERTEs).

LFS confirms a partial but better than expected recovery in 3Q20

Job creation was 569,700 (-3.5% YoY). Employees who worked fewer hours than usual due to ERTE or partial unemployment fell to 887,100. The easing of mobility restrictions allowed job searches to take place, which led to a rebound in the active population and, therefore, an increase in the unemployment rate to 16.3%.

Sizable but incomplete recovery in employment, in a framework where ERTE’s continue to play a cushioning role.

The labour force rebounded less than expected after the end of the lockdown and contained the increase in the unemployment rate.