Thread: Spain heading towards an economic crisis three times as bad as the last one because of Covid.
1. Let's look at the Bank of Spain report on the economic tsunami that will wash over us after the coronavirus healthcare earthquake. 242 pages long, so bit by bit. The key forecast: GDP will sink between 9% and 15% and Spain does not recover until end of 2022. Two long years.
2. In other words, Spain is heading towards an economic crisis between two and four times as bad in terms of annual loss of GDP than during the 2008 crisis. The Covid state of alarm meant “the almost complete cessation of activity in a wide range of sectors”, says Bank of Spain.
3. Bank of Spain: the cost of the coronavirus crisis “has been extraordinarily high in all areas”. New outbreaks cannot be ruled out. Spain has one of the highest mortality rates in the world. Spanish population is “very vulnerable to possible new outbreaks”.
5. Bank of Spain: “The GDP of the Spanish economy suffered the largest quarterly contraction in its history, up to that point, in the first quarter of 2020", due to the impact of the coronavirus and “the measures taken to contain the pandemic”.
6. Spanish Foreign Secretary says she is going on the trip to Mauritania with Sánchez and they're meeting Macron there. Why does this meeting in Africa matter more than coronavirus in Spain or preparing for the 9-15% hit to GDP the Bank of Spain is pointing out?
7. But the bulk of the economic hit is coming in the second quarter of 2020, says the Bank of Spain. The -5.2% of the last two weeks of March will be small fry, “it could range between 16% and 21.8% in the current quarter”. Spain has fallen off the cliff.
8. Since April, there has been a “gradual improvement throughout the quarter”, says the Bank of Spain, but “all private spending items have experienced very significant declines in the first half of the year”. Restrictions, future outlook, less confidence, uncertainty.
10. “... the spread of the disease to virtually all the world's economies and the widespread lockdowns have led to a synchronized global slowdown, which would also point to an intensification in the deterioration of exports”.
12. “The impact of the crisis on employment is particularly pronounced,” says the Bank of Spain. 5.2 million workers affected. 752,000 have lost their jobs. 3 million on temporary lay-off schemes. 1.4 million self-employed have stopped their activity becuase of coronavirus.
15. There colours lead you to believe there are some positive provinces but they are all variants of less work. More has been lost in the south, the eastern coast and the islands, due to industry structure, temporary work rate and different rate of progress during unlockdown.
16. Bank of Spain: “extraordinary uncertainty” about the cost of public spending announced by the Sánchez government during the crisis (furloughs, minimum income, healthcare supplies, regional funds, etc.). Bigger deficit, lower tax collection, more benefit spending.
17. While “households and businesses have paid down debt” in the growth period between 2013 and 2019, Spanish public accounts have not been fixed, there is too much unemployment, too many temporary jobs and too little productivity growth. Homework still needs to be done.
18. There is more “extraordinary uncertainty”, says the Bank of Spain, if we look at the elements that condition the future: the evolution of the pandemic, the damage it has done to the economy in the meantime, and the possibility of “disruptive episodes” in the financial system.
19. Bank of Spain: “there is a non-negligible chance that new outbreaks will occur”. No one knows when or how hard. There are also no certainties about a vaccine. Uncertainty, uncertainty, uncertainty.
20. New outbreaks: “The possibility that this may happen means uncertainty levels will remain relatively high in the coming months, which will have a negative impact on actors' spending and investment decisions”. Households and businesses.
21. Bank of Spain: “There are also no certainties about how households and companies will adapt to the de-escalation plans that have been implemented in Spain and other countries in recent weeks, and what the new normal will be like”. More uncertainty.
22. “Remarkable uncertainty” over how temporary lay-off schemes will end in Spain, due to their novel use in this coronavirus crisis. Bank of Spain notes there are companies moving from one type of temporary lay-off scheme to another without returning to direct employment.
23. Bank of Spain warns, in its bureaucratic language, that temporary lay-offs cannot last forever and that some “might delay, rather than prevent, the process of job destruction” in the medium term. Logical if the underlying work is not being done due to a lack of demand.
24. Risk to employment this time lies with the hospitality industry, tourism and commerce, etc. as they are more affected by the anti-Covid measures. If those jobs are destroyed, it will not be easy to move waiters, shop assistants and so on to other “more dynamic” industries.
25. In the previous crisis, the report says, more than half of Spanish construction workers who had lost their jobs in 2008 had not yet found work again five years later, in 2013, “and only 23% had obtained employment in another branch of activity.”
26. “A significant proportion” of normal (non-financial) companies in Spain will not reach the Covid finish line, warns Bank of Spain, without more liquidity this year. It's not just the temporary lay-offs. “The decline in sales”, supplies, rent, etc.
27. Banks in Spain have granted €37.7 billion in mortgage and other loan deferments, says the Bank of Spain, in more than one million operations. As with temporary lay-offs and business cashflow, how long can the banks put up with that?
29. More uncertainty. Many of these companies will just not return to the market: “there is a significant risk that the decrease in the number of companies registered in recent months may end up causing a permanent deterioration in Spain's productive economy”.
30. In addition to the massive coronavirus uncertainty, there is a “lack of clear perspective” regarding Brexit and tourism. If there is no deal before New Year's Eve, WTO tariffs would mean even worse news for the Spanish economy in the sector most affected by Covid.
32. Bank of Spàin: “Euro area GDP contracted by 3.6% in the first quarter, compared with the 0.1% increase expected before the expansion of the pandemic. The fall in activity is expected to be significantly more pronounced in the second quarter”.
34. Careful, says Banco de España, with the trend towards greater digitalization and online economic behaviors brought about by Covid. All good and well, but it could be a new threat to the Spanish economy, given the inherently global nature of such business and activity.
35. Concluding this thread, “the impact of this health crisis on the Spanish economy will be very severe,” says the Bank of Spain. Only with the bit at the end of March, GDP “suffered the largest quarterly contraction in history”. Second quarter results still to be published.
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