November 30, 2020

The Spanish economy collapses 18.5% and leads the recession in the EU


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Spain is entering a historical recession. The GDP collapsed between April and June 18.5% compared to the first quarter and 22.1% compared to the same period last year, according to data published yesterday by the National Statistics Institute (INE). Unprecedented figures since the Civil War and tripling the result of the first quarter, when the economy fell 5.1%.

Chaining its second quarter down, Spain enters a technical recession, the third so far this century. And it does so with unmitigated virulence and records that mean multiplying by five the worst figure of the previous economic crisis, which peaked in the first quarter of 2009 when GDP fell 2.6% month-on-month.

Now the subsidence is notably higher and stands out within European records. Despite reaping historic falls in GDP, no country in our environment reached the levels of the Spanish economy during the second quarter: Germany fell 10.1%; Italy, 12.4%; France, 13.8% and Portugal, 14.1%. The eurozone economy fell 12.1% and the GDP of the European Union as a whole 11.9%, according to data published yesterday by Eurostat. In both cases, the decline is nevertheless the biggest drop in the historical series, which began in 1995.

Analysts had already predicted that Spain’s GDP would reap a fall higher than the European average. The Independent Authority for Fiscal Responsibility (Airef) predicted a 20% drop in GDP, while the Bank of Spain’s calculations were in the range of -16% to -21%. Funcas predicted a drop of 18%, similar to the 17% reported by BBVA Research, which calculated that in the first half of the year the economy will have collapsed by 22%.

The collapse is not explained solely for structural reasons. It is true that the weight of tourism in the economy – it contributes more than 12% of the country’s wealth – has conditioned its decline. But also other countries, such as Italy and Portugal, have a vocation for tourism and despite this they have registered lower falls than in Spain. The reason? Spain has starred in one of the most aggressive and prolonged confinements of the pandemic. The measures came later than in other European countries, such as Germany, which acted earlier and was able to save part of its activity during the months of April and May.

The figures published yesterday by the INE reflect this situation and show data such as that in the second quarter the activity of commerce, hospitality and transport sank 40%. In the case of artistic and recreational activities, the drop was 33.9%. And that both sectors took advantage of the partial opening of the economy produced with the beginning of the de-escalation.

The advance of national accounting published yesterday by Statistics also reflects a drop in household consumption of 21.2%, an unprecedented figure in this indicator. Thus, national demand subtracted 19.2 points from the year-on-year variation of GDP in the second quarter, a rate 15.5 points lower than that of the first quarter. For its part, external demand subtracted 2.9 points, which is 2.5 points less than in the last quarter. On its side, consumption expenditure by public administrations grew by 0.4%, 1.4 points less than the previous quarter.

The investment also experienced a historical cut, in this case of 22.3%, with falls of around 25% or more, both in the case of investment in housing and machinery and capital goods. By sector, construction (29.9%), industry (23.8%) and services (22.0%) registered collapses of more than 20%. Only agriculture avoided this economic tsunami, registering a rebound of 7.4%.

Imports fell 28.8%, in line with the depression of household consumption, while exports sank 33.5%, highly penalized by the decline in services, traditionally linked to the tourism sector. GDP at current prices fell by 21.1% year-on-year between April and June and stood at 244,877 million euros, its lowest value since the second quarter of 2006, as clarified yesterday from the National Statistics Institute.

The number of hours worked, an indicator that usually goes hand in hand with GDP and shows the impact of the crisis on the labor market, fell 21.4% compared to the first quarter, 16.4 points less than in the previous quarter. In year-on-year terms, the number of hours actually worked decreased 20.6 points, to −24.8%.

Statistics yesterday highlighted the importance of these indicators when explaining that «this variable, compared to equivalent full-time jobs, is considered to be the one that most clearly reflects the employment effects caused by the pandemic and the subsequent measures taken to combat its effects. “

As a consequence of this decrease in hours worked, productivity per hour registered an increase of 3.6. Of course, productivity per full-time equivalent job decreased by 4.4%.

New stimuli

After knowing the GDP figures for the second quarter, the Business Confederation of Business Organizations (CEOE) called on the Government, through a statement, to intensify aid to companies to “normalize” activity and get out of “this dramatic situation ».

The CEOE acknowledges that the economic collapse between April and June is “punctual”, but also warns that the rest of the countries of the European Union did not suffer such a significant deterioration. The employers also had an impact on the fact that unit labor costs and compensation per employee showed “significant” growth, which in their opinion may hinder the recovery from persisting in the coming months.

Along these same lines, the president of ATA, Lorenzo Amor, demanded an investment plan from the government to stop the destruction of companies and the self-employed. “Those who thought that our economy was going to be unplugged for a couple of months and plug back in without any ballast or consequence could not have been more unfortunate,” said Amor, who also warned that an economy like the Spanish one will take time to recover. .

Recovery

This is precisely one of the biggest challenges facing GDP now. The recovery in the form of an “asymmetric V” to which the economic vice president, Nadia Calviño, referred at the beginning of the crisis, is ruled out. And now it remains to be seen the impact that the outbreaks and the latest vetoes on tourism will have on the foreseeable rise that GDP will experience in the third quarter.

Just yesterday, BBVA Research published a report confirming that the advance in face-to-face card spending slowed to 0.5% year-on-year the week from 20 to 26 July. A slowdown that the entity’s study services blame on the restrictions imposed in certain provinces to combat the second wave of the pandemic. One more example that the health evolution that Spain has in the coming weeks will mark the evolution of the economy the rest of the year.

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