The impact of the pandemic
Business 06/07/2021

Pandemic Increases Risk of Poverty in Spain

Weak aid affects savings and leaves State as one of nine European countries with most precariousness

3 min
The pandemic has impoverished both Europeans and Spaniards

BarcelonaThe pandemic is affecting lower-income families in Spain more directly than in most of Europe. Spain is one of nine European Union countries where the percentage of working-age adults - aged 18 to 64 - at risk of poverty rose between 2019 and 2020.

The risk of poverty among the adult population grew because of the pandemic in nine of twenty-seven EU states. Most of them, from the so-called European periphery, such as Spain, Greece, Italy, Portugal or Ireland, although the same effect has also occurred in traditionally stronger economies, such as Sweden and Austria, according to preliminary data published on Monday by Eurostat, the EU statistics agency.

The fall in economic activity in Spain last year was sharper than in the rest of the large economies of the European Union. Gross domestic product - which measures the size of an economy - contracted by a historic 11% , the biggest decline since the Spanish Civil War. This was a much bigger collapse than was recorded by the sixteen Eurozone countries as a whole, where it was 6.8%.

One of the facts that explain both the fall in GDP and the data on poverty is the weakness of the public stimuli approved in Spain. This has resulted, moreover, in a fall in the household savings rate from autumn 2020 which continued in the first quarter of 2021, according to data also published on Monday by Eurostat.

In this sense, Spain started from a position in which families saved, on average, much less than in most countries with which it shares the common currency. Even so, the pandemic initially triggered savings both in the State and all of Europe: the fourth quarter of 2019 - the last before the arrival of covid-19 to the Old Continent - Spanish families had a savings rate of 6.2%, whereas in the Eurozone as a whole it stood at 12.7%. By the second quarter of 2020, it soared above 25% in both territories.

"Until now there was a well accepted explanation" about family savings, explains Albert Carreras, professor of economics at the UPF: it had increased due to restrictions. Families could not spend on leisure or holidays or, because of uncertainty, postponed purchases of durable goods such as cars. This meant that households whose incomes were not greatly affected were able to save more.

Since last summer's gradual opening of the economy across Europe, the savings rate fell as spending became possible again. The difference, however, was large, especially since last autumn and winter, when new waves of contagions forced new economic restrictions on all countries. In this context, the household savings rate in the Eurozone stood at 21.5% in the first three months of this year, while in Spain they had already plunged to 10.6%.

Few public stimuli

In Spain "protection has been scarcer and shorter than in other countries," says Carreras, on government aid to businesses and families. Therefore, despite the initial "months of comfort" when the furlough scheme was launched and the first aid was distributed, the situation has been worsening and support "has been running scarce". In fact, back in November a report by the European Commission's Research Centre warned that Spain was the country where families had lost the most income due to the pandemic.

The uncertainty that has hovered on several occasions about the the extension of the furlough scheme and the few injections of money into the productive fabric and workers are, for Carreras, some of the reasons that explain "the erosion of household savings" in Spain, while in the euro zone the savings accumulated by households during the months of maximum confinement have not yet been lost.

In most European economies governments have guaranteed a minimum income for companies and have given very significant aid to those most affected by the restrictions and coronavirus, something which has not happened in Spain, where support has been "less sustained," says Carreras. Likewise, some countries also have generous lines of help for families. "Here we are poorer," he adds, and recalls in this regard the words of the current Catalan Health Minister, Josep Maria Argimon, when he was Secretary of Public Health and was asked about the balance between reopening the economy and curbing contagion.

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