Covid-19: Quarterly reports on the Spanish economy (Bank of Spain)

Covid-19: The Quarterly report on the Spanish economy analyses recent developments in the economy, within the international and euro area context (Bank of Spain reports).

The analysis includes a series of boxes on relevant economic issues. The reports published at the end of the first and third quarters, respectively, contain an update of the macroeconomic projections for the Spanish economy.

The outlook for the Spanish economy is surrounded by great uncertainty, linked essentially to the course of the pandemic.

To reflect this uncertainty, alternative scenarios have been constructed, according to the assumptions as to how the epidemiological situation evolves.

Two different scenarios

There are two possible senarios which differ even in the short term, since the information available on Q3 is still limited and, in particular, does not permit a precise assessment of the impact on activity of the recent resurgence in infections. Specifically,

projected GDP growth for Q3 under scenarios 1 and 2 is 16.6% and 13% respectively, these being the upper and lower bounds of the quarterly growth rates indicated earlier.

Beyond the short term, under scenario 1 fresh outbreaks of infection will require less stringent lockdown measures than under scenario 2, both in terms of their severity and the productive sectors directly affected (which would be confined to leisure and accommodation and food service activities).

In consequence, the adverse effects on output and employment would also be lower, not only because the restrictions on activity would be less stringent, but also because the lower level of uncertainty would have a smaller impact on households’ and businesses’ spending decisions.

In any event, under both scenarios it is assumed that no containment measures will be required after mid-2021, once an effective medical solution to the virus has been made widely available to the general population.

The decline in Spanish GDP in 2020 would be very high under either scenario.

In annual average terms, GDP would decline by 10.5% in scenario 1 and by 12.6% in scenario 2.

At the end of 2022, under scenario 1 GDP would be approximately 6.5 pp below the level projected in December 2019, and 10 pp below that level under scenario 2.

These figures highlight the persistence of the consequences of the crisis.