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ARCHIVED - High unemployment likely to slow down the post-pandemic economic recovery in Spain
The OECD expect GDP to remain lower than last year in 2022, uncertainty haunts tourism and services sectors
Recent days have seen a surge of optimism throughout the world surrounding the imminent availability of the first coronavirus vaccines, but in economic terms numerous analysts are warning that the post-pandemic recovery in Spain is likely to be slower than in other western European countries and this week the OECD(Organisation for Economic Co-operation and Development ) have added their voice to those forecasting a delayed bounce-back in this country.
The reasons cited in the latest six-monthly report published on Tuesday include the heavy dependence on the tourism and services sectors, both of which have suffered severely from the restrictions imposed by the national government and regional administrations since March and face great uncertainty over the future. In this context the latest estimation of OECD analysts is that Spain’s GDP will fall by 11.6 per cent this year and that the level of growth will be only around 5 per cent in 2021 and 4 per cent in 2022.
Gloomy though these forecasts seem, they are at least rather more encouraging than those published in June, when the fears of a second wave of contagion during the autumn led the same body to predict a drop in GDP this year of 14.4 per cent. The figure of 11.6 per cent is higher than that predicted by the government (-9.2 per cent) but lower than the expectation of the European Commission (-12.4 per cent), and is the second most drastic decrease in economic activity among the G20 nations, being exceeded only by an expected drop of 12.9 per cent in Argentina: the prediction for the UK is a fall of 11.2 per cent.
At the same time, the OECD expects Spain to continue with a very high unemployment rate, ending this year at 15.8 per cent of the active population, almost two percentage points higher than a year ago. With the services and tourism sectors continuing to be vulnerable the rate is forecast to rise to 17.4 per cent by the end of next year before falling slightly to 16.9 per cent by the end of 2022, leading to a drop in consumer spending which will amount to 14 per cent this year.
In the face of these expectations the organization recommends a continuation of the current flexible policies providing support for both businesses and workers, including the ERTE furlough schemes and strategies to “re-assign” the workforce to other sectors. Even with these policies, though, the OECD concludes that the economic recovery in Spain will be “gradual and incomplete”, with GDP in 2022 remaining below the level of 2019 due to continuing high unemployment and the resulting decrease in consumer spending as uncertainty over the future leads people to save rather than spend.
On the other hand, the analysts expect business investment to recover more quickly, fuelled by low interest rates (the Euribor continues to reach record lows on an almost daily basis) and a gradual decrease in uncertainty. Should the vaccines become widely available as soon as some people hope it is possible that the tourism sector might recover extremely rapidly, and the distribution of EU recovery funds will mean an investment of 72,000 million euros into the digitalization and sustainability of all sectors of the Spanish economy.
Meanwhile, the OECD also forecast that Spain’s national debt will reach 120 per cent of GDP over the course of the next two years, having remained at just under 100 per cent in recent times, while deficit will soar to 11.7 per cent of GDP in 2020 before dropping back to 9 per cent next year and 6.6 per cent in 2022.
To put these figures into a wider context, the OECD expects the economy of the Eurozone to contract by 7.5 per cent this year before growing by 3.6 per cent in 2021, again reflecting a limited degree of optimism as Covid vaccines are made available. In worldwide terms the rate of recovery is expected to vary widely from nation to nation in 2021, beginning much later in some countries than in others, but the overall picture is for a 4.2 per cent drop in global economic activity this year to be matched by a similar increase in 2021, and for growth to continue the following year with a rise of 3.7 per cent.
It is interesting to note that the only major economic power not expected to report a drop in GDP this year is China, where the coronavirus first caused major disruption with the lockdown in Wuhan almost a year ago. China’s GDP is expected rise by 1.8 per cent this year and a further 8 per cent in 2021, representing a considerable gain in comparison with other leading national economies.
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