Spain sees worse-than-feared economic dip in 2020 amid Covid-19 pandemic

Spain’s government forecast on Tuesday a worse-than-feared contraction of the coronavirus-battered economy this year, but a strong rebound in 2021 with a possible return to pre-pandemic levels in 2022.

Economy Minister Nadia Calvino told a news conference the government now foresees GDP to fall 11.2 per cent in 2020, down from a previous prediction in May for a 9.2 per cent slump.

Spain is experiencing a second wave of Covid-19 infections, with the highest caseload in Western Europe.

With the economy suffering its deepest recession since the civil war, and the worst in the euro zone, the central bank warned politicians to stop bickering and focus on solutions to the crisis or risk worsening the outlook.

For 2021, Calvino forecast GDP growth of 7.2 per cent, from a previous estimate of 6.8 per cent.

Growth could go to as much as 9.8 per cent next year thanks to the European Union recovery fund, according to a presentation.

Calvino said Spain was banking on a Covid-19 vaccine being available in coming months.

‘NO AUSTERITY’

The public deficit is expected to be worse than previously estimated, at 11.3 per cent, before improving to 7.7 per cent in 2021, which Budget Minister Maria Jesus Montero said would be achieved “with no cuts and no austerity.”

Unemployment would reach 17.1 per cent this year and 16.9 per cent next year, not quite as bad as previous forecasts, according to the presentation.

Calvino said the government plans to issue less debt in 2020 than previously scheduled, promising more details in coming days and weeks.

The forecasts are meant to be the basis for the 2021 budget.

If the minority government of Socialist Prime Minister Pedro Sanchez gets enough votes to pass it in parliament, it will be Spain’s first budget since 2018, and the first full-year budget since 2016. In other years, there was simply a roll-over of the previous budget, for lack of a majority.

Public spending in Spain will be 53.7 per cent higher in 2021 than 2020 if all the EU funds expected for 2021 are disbursed, Montero said, adding: “This budget, with this data, will mark a before and an after.”