The EU forecasts exacerbate the economic collapse of Spain due to the coronavirus and recognize the value of ERTE to "cushion the impact of the crisis"

While the economy had managed to recover after the first round of restrictions, with record GDP increases in the third quarter, Brussels expects the EU to head for another contraction in the final months of the year, which could serve as a spur to speed up the pending negotiations in Brussels around the recovery fund and also for the European Central Bank to launch a new stimulus package in December.

According to the data presented this Thursday by the European Commission, Spanish GDP will fall by 12.4% in 2020. This data is located on the worst side of the Government's range in the macroeconomic picture of the budgets –10.5% / 12.6% - and is more in line with IMF forecasts, which forecasts a 12.8% drop in GDP in Spain for this year.

The Brussels data for Spain is the worst of the 27 - France is left with -9.4%, Croatia, with -9.6% and Italy, with -9.9%) -, and, in addition, it worsens its own forecasts for spring 2020 (9.4%) and summer (10.9%), also for 2021 (7% and 7.1%, respectively). Thus, the Community Executive foresees a growth for Spain of 5.4% in 2020 and 4.8% in 2021.

The Minister of Inclusion, Social Security and Migrations, José Luis Escrivá, has warned this Thursday, however, that the forecasts "have become out of date" by not collecting data from the Labor Force Survey (EPA) and GDP of the third quarter, much better than expected.

"The forecasts of the European Commission", explained the economic vice president, Nadia Calviño, this Tuesday before the Eurogroup, "are based on the information that Brussels had on October 22 and, therefore, given that the degree of maturity and preparation that the different Member States have regarding recovery plans is heterogeneous, not all countries are as advanced as Spain in the work of the recovery plan, the Commission does not incorporate them in the individual evaluation of these plans ".

"In the Spanish case," said Calviño, "the draft of the General State Budget was not presented, nor were the data on the Gross Domestic Product for the third quarter known. [con una subida del 16,7%]. On October 13, the President of the Government presented the summary of the recovery plan and the vice-presidents, each of the elements, but the details, the economic analysis, the analysis of the reforms and the investments of each one of them have not yet been presented. the components to the European Commission and, therefore, the Commission does not have this detailed information to be able to incorporate it into its autumn forecasts ".

The European Commission recognizes that "the severe outbreak of the pandemic in Spain and the strict containment measures taken in response resulted in an unprecedented drop in GDP in the first half of the year, of 22.1% compared to the end of 2019. The end of the lockdown and the relaxation of containment measures allowed economic activity to resume during the second quarter, as evidenced by the strong rebound in indicators in May and June. Following the reopening of the borders at the end of the second quarter, airline flights and tourist arrivals increased rapidly in July, supporting economic activity in the leisure sector. The resurgence of numerous outbreaks during the summer led some European countries to request quarantines for travelers returning from some Spanish regions , and the progressive adoption by the Spanish authorities of social distancing measures. As a result, it was that the upturn in activity slows down during the last quarter of this year. "

The Community Executive expects GDP to contract 12.4% in 2020 and expand 5.4% in 2021. "After the sharp drop in private consumption and investment in 2020, consumer spending is expected to 2021 is supported by repressed demand, that the household savings rate falls after having reached its peak in 2020 due to the lockdown, "says Brussels.

"However," the European Commission continues, "it is likely that the uncertainty regarding the evolution of the pandemic and its potential impact on employment will keep preventive savings in 2021 and 2022 above pre-crisis levels, which that will affect investment decisions in early 2021. "

In this sense, Brussels foresees that "exports will contract strongly in 2020, in the context of declining global growth and a severe impact of the crisis in the tourism sector. Although imports will also contract in 2020, it is expected that the contribution of net exports to growth is negative this year, but should turn positive in 2021, as trade flows and tourism recover. "

Likewise, the European Commission forecasts that inflation "will remain very low in the second half of 2020, dominated by the fall in energy prices and the appreciation of the euro", while for 2021, it is expected that "inflation increase to 0.9% and remain at that level in 2022 as core inflation rises smoothly. "

Political measures against the impact of the crisis

Brussels recognizes the capacity of the social measures taken by the Government to "cushion the impact of COVID-19". In this sense, he explains that the ERTE promoted by the Ministry of Labor of Yolanda Díaz "were abundant at the beginning of the crisis to mitigate the loss of jobs" and that "they have been extended several times and are expected to remain in force until end of January 2021, although more focused on those companies or sectors most affected by the restrictions ". The European Commission explains that "measures were also taken to protect the self-employed through benefits for suspension of activity, extended until January 2021."

"These schemes have done a lot to contain job losses," Brussels acknowledges, "but they have not been able to prevent them completely."

Therefore, the Community Executive foresees that the fall in employment will bring the unemployment rate to 16.7% in 2020, and predicts "that it will increase even more in 2021, when the gradual elimination of ERTE is scheduled." In 2022, Brussels expects job creation to reduce the unemployment rate to around 17%.

The European Commission also recognizes that "business liquidity was reinforced by the public guarantee program for new bank loans and payment defaults, among other measures. The contracting of liquidity loans backed by public guarantees has been high (around 80%), which has helped cushion the decline in company revenues, while demand gradually strengthens. "

"However," says Brussels, "impaired profitability could lead to business insolvencies and risks to productive capacity and employment."

"The Spanish authorities have announced the main elements of a policy package for 2021 that will be financed by the Recovery and Resilience Fund," explains the European Commission, whose impact has not been included in the forecasts presented this Thursday. "The Commission does not incorporate its potentially significant positive impact on economic growth in 2021 and beyond," he explains: "According to government estimates, based on full and rapid absorption and high multipliers, it would increase real GDP growth by about 2 , 5 points in 2021 ".

Public debt record

After reaching 2.9% of GDP in 2019, the public deficit has increased substantially in 2020 as a result of the COVID-19 crisis. "This is due both to the contraction of the tax bases that affect income and to political measures to counteract the impact of the pandemic, which accounts for around 1.3% of GDP," says Brussels.

Thus, "these factors are likely to widen the deficit to around 12.2% of GDP in 2020, although in 2021 it should be reduced to around 9.6% of GDP, as economic activity picks up and with the majority of the measures implemented to respond to the COVID-19 crisis gradually disappearing along with the introduction of measures to increase revenue. "

The Community Executive calculates, without taking into account the effect of new budgets, "that the deficit will be reduced to 8.6% in 2022".

"Public guarantees equivalent to 14% of GDP provide crucial support, but also constitute a risk for the fiscal outlook," warns Brussels: "Due to the large public deficit and the sharp contraction of GDP, public debt is expected to increase by almost 25 points, from 95.5% of GDP in 2019 to around 120% in 2020, a level that is expected to increase somewhat in the following years. Higher GDP growth generated by the implementation of the announced investment and reform package in the Draft Budget Plan, it would help the debt-to-GDP ratio evolve more favorably. "