Spain faces the biggest drop in GDP since the postwar period

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Beyond the alphabet soup of a recovery with which it is speculated whether it will have the shape of a “V”, “U”, “L”, “I”, Nike logo or Bart Simpson’s head, what What seems increasingly evident is that the first fall that the economy will suffer has been unmatched in recent decades. A Pimco report for investors sees that the current crisis will be “the first in history caused by decree” and may be “the deepest and shortest of the modern era.” Spain will not emerge unscathed as it was seen last Thursday after the increase in unemployment in March, and the fall that the Gross Domestic Product (GDP) will experience this year seems to be the largest since the postwar period.

The greater destruction of activity that the organisms foresee can take place in the quarter that has just begun, they do not find a reflection in the historical series of the INE in the last half century. “The Spanish economy is facing the greatest” shock “in supply and demand experienced since the Civil War,” says a Freemarket report, which calculates that the fall in GDP in the first quarter will be 9.1%, which will happen another 4.7% drop in the second.

Low the first semester
Funcas draws a scenario in which the containment measures begin to relax in May and June and shows a fall in quarterly GDP of -2.2% in the first quarter and 7.7% in the second. Fedea, BBVA Research and the Rafael del Pino Foundation calculate that the decrease was 4.7% between January and March but that from April to June it can reach 13.5%.

Just to temporize, in the first quarter of 2009, when the worst three months of the financial and real estate crisis occurred, the drop in GDP was 2.6%. The INE’s historical series of quarterly growth does not register a greater fall in a quarter since it started in 1970. In annual terms, Funcas believes that this year growth could sink 3%, but Freemarket raises it to a range of 5 , 6% to 10.6% in the most adverse scenario. Fedea, BBVA Research and the Rafael del Pino Foundation, meanwhile, calculate a drop of -4.1% of GDP, but that can go down to -7.9% if the situation becomes difficult.

In other words, it would be destroyed from around 37,000 million in the most favorable scenario in Funcas (-3%), to 51,000 million in the most optimistic of Fedea, BBVA Research and the Rafael del Pino Foundation (-4.1%), passing through the 69,000 million of the 5.6% predicted by Freemarket or the 98,000 million that would mean a fall of 7.9%. Falls that would focus on the second quarter, which seems to be the worst of all. To compare, the other recessions that Spain experienced in the last half century did not reach these levels: the falls in annual GDP were -0.1% in 1981, -1% in 1993, -3.7% in 2009 , from -0.8% in 2011, -3% in 2012 and -1.4% in 2013

“As the days go by, we are getting closer to the most negative scenarios. For the economy “only” to fall 4.1% this year, it was counting on the confinement being lifted on April 12, something that is less and less likely to happen, “says the head of economic analysis at BBVA Research Rafael Doménech, who considers that “the world economy is facing a recession that we have not seen since the end of World War II”, which is also blamed on Spain.

According to the historical series of GDP growth since 1850 by the professor of the Carlos III University, Leandro Prados de la Escosura, there are no precedents of annual falls of this magnitude at least since the 1940s, although everything will depend on whether it is possible to control the virus quickly and future outbreaks are stopped.

Bend the recession curve
The production of services, the main sector of the Spanish economy, measured by the PMI Index, halved in March compared to February, going from 52.1 (below 50 is an indicator of recession) to 23 points, which indicates an “unprecedented drop in activity,” says Paul Smith, an economist at IHS Markit. After publishing this data, the Fiscal Authority updated its forecast in GDP in real time: in the second quarter it went from predicting -0.9% to -1.6%. All this without knowing any April data yet.

Therefore, the challenge is to double the recession curve and ensure a recovery as fast and intense as possible. The IMF estimates that each month of confinement takes three points off GDP growth. After 9/11 and the 2008 crisis, OECD Secretary General Ángel Gurría said that the coronavirus outbreak will overcome them and will be “the greatest economic, financial and social crisis of the 21st century.” Funcas predicts a growth of 2.8% in 2021, which is in the third and especially the fourth quarter of this year when activity begins to awaken.

As tourism is the engine of Spanish GDP and exports represent 33% of GDP, much of Spain’s recovery will depend on that of the rest of Europe and the world. Pimco has seen a U-shaped recovery since the fourth quarter.

However, McKinsey devises several scenarios in which one of them is the recovery in the form of the logo of the sports brand Nike, in which the Eurozone will not return to its pre-crisis levels until 2023, in which the outbreak reappears with the time in certain countries. In this scenario, the Eurozone’s GDP would fall 9.8% this year. If there is a U-shaped recovery, the European economy will return to its previous point in the first quarter of 2021. If the measures taken take immediate effect, then the recovery would take a “V” shape. «We are not facing a temporary or conjunctural disturbance, but rather a phenomenon whose effects on the medium-long term horizon can be very negative. A much more intense and damaging “L” cycle is outlined than the one recorded in the 2008-2013 period », warns Freemarket.

“Policies must be designed to restart economic activity, so that the recovery is V-shaped,” Doménech calls, who nonetheless admits that “even working to make this happen, it will be very difficult, especially for some sectors due to the restrictions of mobility and exit ».

Nothing will be like before. “Most likely, the recovery will be gradual. Our habits and patterns of behavior and consumption are going to change, and that is going to affect the economy. People are going to take much more precautions from now on. There will be sectors that are going to have a boom, such as new technologies, leisure consumption, platforms, online sales … to the detriment of others such as tourism that will go down. At some point he will recover, the question is how much and to what level, “says Doménech. .


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