Business 07/07/2021

Brussels upgrades Spanish GDP forecasts again thanks to vaccines and despite delta variant

The Commission estimates that the economy will grow by 6.2% in 2021, three tenths of a percentage point more due to advances in immunisation and employment

3 min
Olaf Scholz (Federal Minister of Finance of Germany), Christine Lagarde (President of the European Central Bank), Nadia Calviño (Vice-President and Minister of Economic Affairs and Digital Transformation of Spain), Paschal Donohoe (Minister of Finance and Ireland) of the Eurogroup), Paolo Gentiloni (European Commissioner for Economic Affairs)

BrusselsDespite the long shadow of the delta variant, the horizon for European economies is becoming clearer. On Wednesday, the European Commission improved its outlook for the Spanish economy's growth by three tenths of a percentage, after having already revised them upwards in its last estimate in May. Therefore, it now believes that the state's GDP will rebound by 6.2% in 2021, mainly thanks to the advancement of the health situation, the rapid progress of the vaccination campaign and the gradual lifting of restrictions. This is one of the largest rebound in the European Union, behind only Romania, Ireland and Hungary.

Beyond vaccination, which is allowing the health sector to not be saturated despite the soaring number of cases in communities such as Catalonia, Brussels believes that one of the main causes of this increase in optimism is the pace of job creation and the exit of workers from the furlough schemes in sectors such as the service one, the hardest hit during the pandemic, which have been returning to work since the end of the state of alarm on 9 May. "Other indicators continue to improve steadily, including business and consumer trust", says the EU executive, who concludes: "This suggests a solidification of the recovery in the second quarter is expected to continue".

On the other hand, another of the engines that will push the Spanish GDP are the European funds. Spain is one of the main beneficiaries of the Next Generation EU. This summer about 9,000 million euros in non-refundable grants - which are the first advance of the total of 140,000 million euros that correspond to Spain - will reach the State. The green light will come after EU finance ministers are expected to give the final green light next week to the first block of Spanish recovery plans, including Spain, which already got the go ahead from the European Commission a few weeks ago.

However, it is expected that the main boost from these funds will be felt in 2022, when it believes that the economy will grow by 6.3%, a figure that is up to five tenths more than expected in May, mainly because of the uncertainties caused by the expansion of the delta variant and the impact it may have once the good weather is gone. In addition, most countries in Europe are expected to achieve 70% of adults immunised by July, but the population of concern now is the youngest and, at the same time, there is concern about the percentage of the population that does not want to be vaccinated. "More and more vaccines are not being administered", European Commission President Ursula von der Leyen said this week, referring to the more "sceptical" part of the population.

In the case of inflation, for Spain Brussels believes that the CPI will soar to 2.1% this year, mainly because of the rise in energy prices. It is expected to fall again to 1.4% in 2022.

Best upward revision in 10 years

Be that as it may, the Spanish GDP will be one of those that will rebound the most because it was also one of those that sank the most. "The European economy will experience the fastest growth in decades, driven by strong demand both internally and externally and the faster than expected reopening of services during spring", said the Commissioner for Economic Affairs, Paolo Gentiloni, who has valued that growth forecasts are improved to six tenths for the whole economy of the Union, "the largest upward revision we have made in more than ten years". It is also expected that the average European economy will grow by 4.8% this 2021 and 4.5% in 2022.

However, we must remain vigilant: "To continue on the road to recovery, it is essential to maintain supportive policies for as long as necessary. We need to redouble vaccination efforts. The spread of the delta variant is a reminder that we are not yet out of the shadow of the pandemic", said Commissioner Gentiloni.

"The uncertainty and risks surrounding the prospects for growth are high. The risks posed by the emergence and spread of variants of the covid-19 virus underline the importance of further increasing the pace of vaccination campaigns. The economic risks relate in particular to the response of households and businesses to changes in restrictions", concludes the EU executive.

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