March 5, 2021

Spain will close the first quarter with a 0.5% drop in GDP due to the uncertain management of the pandemic




The fear that the start of 2021 can become a continuation of the previous year is shaping up more and more real, due to the uncertainty surrounding the control of the pandemic: The report “Economic forecasts – 1st quarter 2021”, prepared by the Observatory of Financial Reality ( ORFIN), the university chair of the University of Alcalá (UAH) and Thinking Heads, foresees a 0.5% drop in GDP in the first quarter of the year. A situation that is expected to improve throughout the year, to end 2021 with a growth of 6.2%, although with the public deficit at 8.5% of GDP Y a public debt shot up 122.5%. A fact that was not recorded, has pointed out the economist José Carlos Díez, who has coordinated the study, since the loss of the last colonies at the end of the 19th century.

Regarding unemployment, the ORFIN study has estimated that Spain will end the year with an unemployment rate of 16.5% Although Díez and the other two authors of the report – the former deputy director general of the Directorate General for Economic and Financial Affairs of the European Commission Carlos Martínez Mongay and the deputy director of the Ivie Joaquín Maudos – have agreed that this figure will depend on the evolution of “employment and business support”, in reference to the extension or not of the ERTEs and their eventual conversion into EREs.

Along these lines, Mongay has recognized that “Unemployment is performing better than expected” and warned that precisely figures such as those of the ERTE and the unemployment of the self-employed “distort” the comparisons since they affect a total of around a million people.

Light at the end of the tunnel

“Uncertainty»Has been the term most repeated by the economists authors of the report Carlos Martínez Mongay (former deputy director general of the General Directorate of Economic and Financial Affairs of the European Commission), Joaquín Maudos (deputy director of the Ivie) and José Carlos Díez, who have agreed that the depth of the crisis and the subsequent recovery will depend on the effectiveness of restrictions against Covid as well as the vaccination rate.

In any case, the report foresees that from the second quarter the vaccination rate will improve and European funds will enter the scene, to boost the recovery: Mongay has estimated that “They will benefit more to the countries of the periphery like Spain” And, from Orfin, they have pointed out, based on calculations by the Center for European Studies in Amsterdam, that this “rain” of liquidity from Brussels may mean a cumulative impact on the aggregate GDP of the Eurozone of 1.5% by 2023 and 3% in 2027. For the group of countries that benefit the most – Italy, Spain and Portugal – the consequences on GDP can reach up to 4% additional growth by 2023 and 8% until 2027.

In any event, the report has warned against various risks as the European funds are used to finance existing projects, the beneficiary country rejects the conditional part – in the form of a loan – of these aids, which are used to finance current expenses or tax cuts and that they are completed decoupling these investments from structural reforms.

On banking, the report has warned that the problems to control the third wave and the slower rate of vaccination increase the risk that your assets will deteriorate further, aggravating the structural problem of its low profitability derived from the prolonged low interest rate policy, and from non-bank competition.

Asked about tourism, the economist José Carlos Díez, has stated that «The priority objective» must be to save the summer since July, August and September are the months with the highest turnover from tourism. It has also asked that the scarce resources available to the Spanish economy – with a strong structural deficit – should be directed to “save viable companies”. A point of view shared by Maudos and Mongay, who have suggested that the ICO can extend the grace periods or partially reconvert into equity loans that inject capital into companies impacted by the Covid. In addition, they have opted for the bank to make an effort to support the knowledge society. For Díez “the bank concentrates a lot of savings in brick and there is little financing for innovation.”

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