Brussels sees light at the end of the tunnel and believes the Spanish economy will grow by 5.6% this year

At this rate, however, the state's GDP will not recover pre-pandemic levels until 2023

3 min
The Vice-President for Economic Affairs, Nadia Calviño, with the Commissioner for Economic Affairs, Paolo Gentiloni.

The Spanish economy is recovering better than expected. The European Commission sees the light at the end of the tunnel and on Thursday slightly improved its forecasts for Spain's GDP growth, especially after the downturn in 2020 was less than expected. Thus, if in November the Brussels technicians anticipated that Spanish GDP would grow by 5.4% in 2021, this Thursday they have slightly amended the figure with a touch of optimism and now expect the economy to improve by 5.6%. The optimism, however, is "cautious", a European source said yesterday, because uncertainty continues to prevail, especially when the vaccination campaign is progressing more slowly than expected and is hampered by the new variants of coronaviurs.

With this caution in mind, the European Commission has also revised upwards its growth forecasts for the Spanish economy in 2022. If three months ago it believed that GDP would grow by 4.8% next year, it now considers that it could grow by as much as 5.3%, maintaining almost the same rate. Even so, at an annual rate of 5.6%, Spanish GDP would not return to 2019 levels until 2023. Spain, along with Italy, is one of the countries that will not manage to recover pre-pandemic levels before the end of 2022, because an 11% drop in GDP has to be recovered, which is what the Spanish economy lost last year. The Spanish government is even more optimistic and estimates that it can grow the economy by 7% by 2021.

However, the recovery of the Spanish economy would be stronger than that of the Eurozone as a whole, because its downturn was also greater. Thus, the euro countries are expected to grow by 3.8% this year, the same figure as for 2022. In fact, if the forecasts are confirmed, Spain would be the European country with the highest growth, ahead of France after having suffered the worst fall in 2020. In fact, in the Eurozone, the opposite effect is taking place. Brussels slightly worsens the recovery forecast for all the states that use the euro, mainly due to uncertainties about the effectiveness and speed of the vaccination campaign.

The impact of tourism

Precisely the countries where this difference between the levels of 2019 and the current levels is greater, are those that depend more heavily on tourism and services. As the European Commission points out, the largest gaps are in Greece, Croatia, Malta and Spain, where they are close to, or exceed, 10%. On the other hand, the smallest gaps are in Poland, Finland and Lithuania (with differences of 2%). European technicians devote a special chapter in these forecasts to look at the impact of tourism, which has suffered falls of 70%, and where Catalonia, for example, has been one of the most affected regions, as it can be seen in the following map. "Many Mediterranean countries have seen a stronger decline in coastal tourism because of their dependence on air transport", says the Commission's report.

The evolution of tourism in European regions in 2020

However, just as tourism has been one of the sectors hardest hit by restrictions on movement and border closures, Brussels expects it to recover considerably in 2021 and, above all, in 2022. Hence the forecast of a "robust" growth of 5.3% for the Spanish economy in 2022. At the same time, however, the Commission stresses the uncertainty when it comes to planning and, above all, tourism from outside Europe will continue to mortgage the evolution of this sector especially this 2021.

For the economy as a whole, however, there is a warning that the pandemic could leave "deeper economic wounds than we thought", stressed economy commissioner Paolo Gentiloni. The Italian referred not only to the aggravated inequality between European countries due to their different capacities to respond to the crisis, but also to business bankruptcies, which could have a "severe impact". And furthermore, Gentiloni warns of the risks of aggravating internal inequality, with increases in unemployment, and further complicating the situation of those who are already vulnerable, such as young people and women.

The push of the anti-pandemic funds

In addition, the European Commission's forecasts do not take into account the boost that the anti-pandemic funds will give because there is still not enough information to calculate to what extent they will be able to push up the European economies. Spain will receive more than 140,000 million euros between credits and subsidies, and for 2021 it has budgeted 27,000 million. A first advance of 10 billion should arrive at the end of the summer. "This means that the recovery in 2021 and 2022 will be stronger than we are projecting", said Gentiloni, noting that depending on the states the push of the recovery funds can bring increases of between 2% and 3.5% of GDP during the years in which the European money will be absorbed.

Until this happens, however, European economies have free rein to spend and increase the deficit by promoting measures to support workers, businesses, and the unemployed in the face of the economic slowdown. In Brussels no one disputes the need to continue with fiscal stimulus policies but there are voices both within EU institutions and in some national governments who wonder how long they have to last. At the moment European sources reiterate that "the withdrawal of the measures has to be calibrated" because it cannot be "neither too fast nor too slow".