The head of Economic Analysis of Spain of the BBVA Research studies service, Rafael Doménech, ensures that everything indicates that the fall in GDP in the second quarter of 2020 will be double digits and that the recession in the whole of the year will exceed that of the great crisis in 2009. He believes that in many sectors it will be possible to return to normality prior to the crisis and in others COVID-19 will leave quite lasting consequences. Specifically, it states that tUrism and hospitality may take longer to recover.
He advises having a clear medium and long-term exit strategy to reactivate the economy after hibernation. “It is necessary to carry out massive tests on the population as soon as possible to check who is already immunized and, therefore, ready to return to work and start the economy again. And also to identify risk groups and maintain measures of social distancing effective and selective, “he says.
Doménech has been director general in the Economic Office of the President of the Government (2006-2008) director of the Institute of International Economics, member of the Advisory Board of the University of Valencia and collaborating researcher of the OECD, European Commission, Ministry of Economy and Finance and of the Rafael del Pino Foundation.
Finally, the government has decided to stop all activity not considered essential. Do you see it as an adequate measure?
Once the initial contagion was not contained, confinement is the most effective measure to delay expansion and prevent the collapse of the health system, which is the priority. But tightening confinement measures has a very high economic and social cost. On many occasions it is difficult to distinguish what is essential from what is not. Production chains are complex and the basic needs of society and its healthcare system require the contribution of many companies and sectors. An apparently non-essential activity can be part of a chain in which your service or final product is.
This paralysis of activity has been taking place gradually (activities such as construction followed at the beginning). Is this approach, that is, gradual paralysis, appropriate or would it have made more sense to make the decision to close at once?
Countries such as Singapore, Taiwan and Korea have demonstrated the effectiveness of preventing the initial spread of contagion with preventive measures of social distancing, health control, geolocation mobile applications and massive population testing. Spain or Italy were late and confinement has been inevitable. Seen in perspective, it would have been preferable to act faster, with more force and to agree on action with sectors, companies, social agents, public administrations and political parties, imposing intense measures of health security and social distancing with which to avoid new infections, especially in risk groups, in exchange for allowing more activities as long as they scrupulously comply with these measures. We are facing an exceptional situation that requires the support of the entire society.
Do you think that the economic measures adopted by the Government are generally correct? Any that you over or, on the contrary, that you miss?
Measurements generally go in the right direction. Temporary aid to the incomes of individuals and households, and to the survival of companies and jobs are absolutely necessary. It has been lacking to go ahead of the crisis, to generate more certainty and consensus. Now it is necessary to have a clear exit strategy in the medium and long term, to reactivate the economy after hibernation, which will not happen automatically. Some of the measures taken only make sense temporarily, and should avoid any kind of legal uncertainty and permanent negative side effects that undermine recovery. It is necessary to carry out massive tests on the population as soon as possible to check who is already immunized and, therefore, ready to go back to work and start the economy again. And also to identify risk groups and maintain effective and selective social distancing measures.
How much do you estimate that GDP will fall this year and next in Spain due to the epidemic and all the economic shocks it is causing?
With the extreme uncertainty that we currently have, it is very difficult to give GDP decline figures with a minimum of precision. We can make assumptions and build scenarios under transparent hypotheses, but little else with all the existing unknowns. Each week of 50% activity subtracts one point from GDP. Everything indicates that the fall in GDP in the second quarter of 2020 will be double digits and that in the year as a whole the recession will exceed that of the Great Recession in 2009. As we have information in real time to reduce uncertainties Existing forecasts may provide more accurate forecasts.
How many jobs will not be recovered despite efforts to avoid layoffs through ERTEs?
It is not known how long the current period of confinement will last, how gradually the restrictions will be lifted, or the intensity of the subsequent recovery. It is very likely that some sectors will take at least several quarters to recover normal levels of activity. And in others there will be structural changes. ERTEs and reductions in working hours are necessary measures to prevent further job destruction, but they cannot prevent some companies from having the ability to survive or from doing so with their pre-crisis productive capacity. Nor have they been able to avoid the destruction of temporary employment that occurred in the month of March. Only part of these workers can be trusted to get a new job as soon as recovery begins.
What steps should be taken when normalcy returns to “heal” the large open wound in the economy?
In many sectors it will be possible to return to normality prior to the crisis. In others, the COVID19 will leave quite lasting consequences. Tourism and hospitality may take longer to recover. In the medium and long term, we must do everything possible to facilitate the reassignment of employment and productive factors to the booming sectors, from those that suffer the most as a consequence of the pandemic. And, above all, we must not forget the challenges that we already had before this crisis. First, environmentally and socially sustainable development. And second, a huge technological and digital transformation, which is strengthened, before which we must prepare ourselves with more human capital, with appropriate labor and competition regulations, and a modernization of the welfare state.
And to reduce the inequalities that according to all the experts this crisis will cause?
Beyond the important effects on inequality as a consequence of the increase in unemployment that may occur, its fundamental determinants in Spain have to do with school failure and early abandonment of the educational system, inequality of opportunities, little intense competition in some markets , and an inefficient and unequal labor market. Our structural unemployment rate more than doubles that of other European countries, and the temporary and long-term unemployment rates are also very high. We must do everything possible to heal the wounds of this crisis, but with a long-term vision and without forgetting the structural causes of inequality in Spain.
And the banking sector? How do you think you should react in the current circumstances? There are those who remember the more than 100,000 million injected into the sector in the crisis of ten years ago, of which the majority will never recover.
In this crisis, the banking sector is much more healthy and capitalized than in the financial crisis. Unlike the enormous cost that it had to rescue millions of small savers who had their savings in many technically bankrupt savings banks, now the whole of the banking sector in Spain is going to be part of the solution. It has a crucial function to sustain most of the productive fabric of the Spanish economy and guarantee the survival of hundreds of thousands of companies and millions of jobs, by expanding the existing and new liquidity lines that are being put in place. underway with public guarantees.