The recovery will not have a “V” shape and even the Government already recognizes the European Commission in its Stability Program. This was announced by Vice President for Economic Affairs Nadia Calviño and Finance Minister and Government Spokesperson, María Jesús Montero at a press conference, announcing that GDP will contract 9.2% this year to chain a rebound of 6.8% next year. This means that by the end of 2021 the activity lost this year will not have been recovered. Calviño named it “asymmetric V”. That is to say, It is not V, but rather a sudden fall and a recovery to the trantran in the form of the Nike logo.
The scenario is devastating: the biggest drop since Civil war, when in 1936 the GDP sank 23.6% according to Professor Leandro Prados de la Escosura. In some respects, the Executive’s sketch is more negative than that forecast by the IMF (-8% in 2020 and 4.3% in 2021) and more similar to the central scenario of the Bank of Spain (with a bump of -8, 7% in 2020). The confinement in the face of the spread of the coronavirus, which has left a good part of the productive sector fallow, will have an impact on consumption and investment, as we saw in the collapse of GDP in the first quarter.
In other respects, the scenario is more positive. The unemployment rate will climb from 14.1% in 2019 to 19% in 2020, a softened increase by the three million employees affected by ERTE who do not count as unemployed, which will only drop to 17.2% in 2021. The IMF forecast 20.8% and 17.5% in 2020 and 2021.
“Part of the activity lost in the second half of April has been recovered,” Calviño said, citing electricity demand. But in the Government’s plan, private consumption goes from growing 1.1% in 2019 to sinking 8.8% to rebound 4.7% in 2021. The behavior of investment will be even worse: an unprecedented collapse in peacetime of 25.5% to grow 16.7% in 2021. The foreign sector, with the highest ranking of countries in recession, will not come to the rescue: Imports will fall 31% and exports 27.1%.
The biggest debt since 1902, with Cuba and the Philippines
Public finances will suffer strongly. The deficit will hit maximums since the bailout was called in 2012: 10.34% of GDP, nothing more and nothing less, with revenue sinking from 25.7 billion to 41.2% of GDP and spending, especially on unemployment, skyrocketing to 50.5% of GDP. Minister María Jesús Montero has insisted that this effect will be temporary, but all this will leave an invoice that will last over time, with public debt soaring from 95.5% of GDP to 115.5% in 2020. This is the largest liability since 1902, when Spain was still digesting the consequences of the wars in Cuba and the Philippines.
Only the expense already approved implies 28,403 million euros, taking the bulk of the benefits related to the ERTE, which represent 17,894 million euros. The update of the installments on account for the communities represent 2,867 million, the credit to the Ministry of Health on account of the contingency fund adds 1,400 million more and the labor losses due to isolation, 1,355 million additional.
Montero: «There will be no adjustment of public spending»
For 2021 the Executive has preferred not to calculate the deficit and the public debt, according to Montero they will do it next year when they have “more data”. But the cost to the public sector is monumental and will not fade easily over time. Calviño and Montero have hoped to approve the Google and Tobin rates for digital services and financial transactions as soon as possible, but both taxes collectively collected, in the optimistic estimate of the Government, 2,050 million. And as the minister-spokesperson has detailed, they will not enter into force “Until the fourth quarter”.
But the joint collection will be reduced in the “environment of 5%”, Montero pointed out. Due to taxes, the great fall in collection occurs on business activity and operations, which sheds light on what the economic impact will be by sectors. The Corporation tax will reduce its income by 8.7% and Capital Transfer by 37.9%.
The Personal income tax It will be the one that falls the least in the forecasts of the Treasury, with 2.4% less and the prices lowering its income by 5.75%. Regarding the VATDespite the drop in consumption, it will decrease “only” by 5.2%, while excise duties will lower their contribution by 6.7%.
«No adjustments are planned in public sector spending“Montero insisted, adding that” the Government is not considering either a massive increase in taxes or a massive decrease in taxes. ” Instead, in addition to the Google and Tobin tax, it has opted to speed up the approval of the new Anti-Fraud Law. But, in the disbursement or in the income, sooner or later more important adjustments will be needed.