The latest data until October shows that Spain received 17.9 M international tourists in the first ten months of the year. Meanwhile, spending declined by 77.3%. On its part, Exceltur expected levels of tourism GDP and income from foreign tourism to fall by €106.16 Bn in 2020 down to €46.43Bn, equivalent to the levels of 1995.
The Spanish economy has been showing clear signs of structural exhaustion prior to Covid-19. The indicator that summarises this weakness is the stagnation of GDP per capita in relation to the EU average, which has stood at 90% since 2016. This is significantly lower than the 98% reached in 2003, according to a report published by Funcas. The crisis generated by the pandemic hits an economy that was no longer converging with the EU27.
The Eurozone economy grew by record high of 12.7% in the third quarter with expansion including the four major countries: Germany by 8.2%, France by 18.2%, Italy by 16.1% and Spain by 16.7%. This rebound reflected the largest increase since statistics started being kept in 1995. Specifically, Spanish historical GDP’s followed a plunge of almost 18% in the previous three months. However, these figures has a sort of bittersweet taste as they coincide with the reintroduction of strict containment measures across the region which are likely to make the expected recovery reverse.
The International Monetary Fund revised upwards estimates of global growth in 2020 but warned of a long and asymmetric recovery with uncertainties in which Spain will be the developed economy that falls most in the year. Thus, the agency now expects world GDP to fall by 4.4% in 2020 ( against -4.9% in June), thanks to China’s performance. The IMF forecasts for Spain a fall of 12.8% in 2020 to recover 7.2% in 2021. This drop is more than double that expected for the advanced countries as a whole (-5.8%).
The Spanish economy went into technical recession in the second quarter of the year after registering a 17.8% drop in GDP between April and June. This is the biggest quarterly fall in the National Statistics Institute (INE)’s historical series which began in 1970. That said, this decline has been less than was anticipated at end-July. At that point, and in the absence of some data, the INE estimated that GDP would have declined by 18.5% in the second quarter.
The Bank of Spain presented the update on its growth forecasts for the period 2020-2022, formulating two alternative scenarios. They provide a range of negative growth for GDP in Q3 of 9.5%-12.3% year-on-year (equivalent to quarterly advances of 16.6% and 13% respectively). On the other hand, it flags the upward risk of the various initiatives implemented at a European level, mainly the European Recovery Fund.
Nadia Calviño, Minister of Economic Affairs expects, “with all due caution and prudence,” third quarter GDP growth of 10%, in addition to an improvement in employment data. At the same time, Prime Minister, Pedro Sánchez anticipated that the aid Spain will receive from the EU Recovery Fund (€140 Bn) will add 2 percentage points to the GDP in the long term.
Yesterday, it was confirmed the historical collapse of Spanish GDP: it declined 5.2% until March due to Covid-19, its biggest quarterly fall recorded in the historical series. With a contraction of the activivity in the second quarter greater than that in the first taken for granted, Spain is facing a recession. In this context, the Bank of Spain argues that the only way to bring the country’s accounts back under control after the pandemic will be the combination of fiscal adjustment and structural reforms.
Last week there were sharp falls in the stock markets (-4%/-5% in Europe, -6%/-7% in the US), with the biggest drops since March. In a context of a significant disconnection between prices and fundamentals after the sharp rises from the March lows, which were discounting an unlikely “V” recovery, these downward moves seem logical. Also the upward excesses, which until last week were the protagonists. Our correspondent in Washington, Pablo Pardo, analyses this stock market and economic chaos.
David Page (AXA IM) | Yet even on our relatively bullish assessment the US economy will close 2021 1.7% below the level of GDP it would have achieved with potential growth from end-2019. This suggests the US economy would still exhibit spare capacity – a higher level of unemployment than at the start of 2020 and lower capacity utilisation, something that is likely to leave the Federal Reserve struggling to achieve its 2% inflation target – let alone anything higher.