Funcas | The confinement and closure of a big part of Spain’s activity due to the coronavirus crisis will have a very severe impact on the economy this year. The sectors most directly affected by the shutdown – retail, hotel accommodation, restaurants, cultural and sporting activities and personal services – account for 15% of GDP alone. And they also have a ‘snowball effect’ on the rest of the sectors equivalent to 6% of GDP, according to our forecasts’ update for 2020 and 2021.
Using a simulation of the possible impact of the restrictions on each of the segments of the economy, and their evolution once these limitations have eased, our conclusion is that the hotel and restaurants’ sector will be the most affected. Its GDP would be 20% lower than that at end-2019.
Construction (-5%) and manufacturing (-4,7%) would be the other two most damaged sectors. Only agriculture, extraction and energy industries, public administration and health and education, would maintain a similar level of GDP to that prior to the health crisis.
On the demand side, the shock will also be severe. Households will adjust their consumption expenditure. This will be due to the confinement and to lower disposable income, as well as to the unprecedented increase in precautionary savings. The impact on investment will be even more intense, due to the halt in activity and the sharp deterioration in business expectations. Exports, for their part, will suffer from the collapse of international markets and the unprecedented drop in tourism revenues.
As a result, the Spanish economy will fall by 7% this year, with a sharp contraction in the first half and a rebound from the third quarter onwards, but without making up for lost ground. The improvement will continue in 2021, with GDP growth of 5.4%. However, GDP will not recover its pre-crisis level until 2023.
In 2020 around 900,000 jobs will be destroyed. If we add those affected by the temporary layoffs schemes (ERTEs), the job losses will be 2.3 million. The unemployment rate will be 18.8% this year, falling to 17.1% in 2021. If the workers affected by ERTEs were counted as unemployed, the unemployment rate in 2020 would reach 24.4%.
The public deficit will exceed 10% of GDP due to the recession and measures to support the economy. Revenue could be reduced by 56.6 billion euros compared to 2019 and expenditure increased by 28.8 billion. This would push public authorities’ need for financing to 118.3 billion euros (compared to 32.9 billion a year earlier). In 2021, the deficit could moderate to 6.4%, leaving debt at around 115% of GDP, 20 points higher than before the crisis.