The coronavirus economic tsunami

Patrons Column: A 12% or 15% GDP hit for Spain's economy is three or four times worse than the worst year in the previous economic crisis.
By Matthew Bennett
Jun 24, 2020, 6:33 pm

Spain's gross domestic product (GDP) will sink 12.8% in 2020 because of coronavirus, the International Monetary Fund (IMF) has announced today. In the Bank of Spain's worst scenario, it could collapse by 15.1%. In a few months because of the Covid emergency, it will drop three or four times more than during the worst year of the previous economic crisis. The awful forecast is based on "persistent social distancing" through the second half of the year, and has worsened since April.

In 2009 in Spain, GDP "only" fell by 3.8%. The unemployment will come back. The business destruction and the stressful struggle not to go bankrupt will come back. The problems making it to the end of the month and the abandoned futures will come back. Just when the economy was getting going again, a historic pandemic has hit the country and the world. The IMF wrote in April that the "Great Lockdown" would be the toughest time since the Great Depression in the 1930s. Today, their forecast got worse.

For now, the temporary lay-off scheme is smoothing the impact on the unemployment figures, but they are a temporary patch that cannot last forever. The work in the companies that is normally done in exchange for workers' wages has been halted because of the Covid lockdown. How many businesses will be able to hold on, and for how many months? How many workers currently on temporary lay-offs will end up on the dole by the end of this year? The next registered unemployment figures come out on July 2.

Despite the relief brought on by the thought of a day at the beach following the months of historic lockdown in Spain, and despite the government's desire to get tourism going again, the economic tsunami is now rumbling towards us with great energy after the healthcare earthquake. The new context is harsh, but it could also help us to think about more immediate options: does it matter if we welcome a few more or less tourists, a few weeks earlier or later, when we are staring at a loss of 12-15% of GDP, or should safety be the priority?

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