The Diplomat
Spain will experience in 2021 the highest economic growth in the Euro Zone and even in the EU as a whole, according to the European Commission’s winter 2021 economic forecasts, which do not include the possible impact of the Recovery and Resilience Plan and warn, in any case, that the evolution of the Spanish and European economy will depend on how the COVID-19 vaccination campaign develops.
According to the Commission’s report, presented yesterday by the Commissioner for the Economy, Paolo Gentiloni, Europe remains in the grip of the coronavirus pandemic and the resurgence in the number of cases, together with the appearance of new, more contagious strains of the coronavirus, “have forced many Member States to reintroduce or tighten containment measures”. However, “the start of vaccination programmes throughout the EU provides grounds for cautious optimism” and “economic growth poised to recover as containment measures ease”.
According to the 2021 winter economic forecast, the euro area economy will grow by 3.8% in both 2021 and 2022. Likewise, in the EU as a whole, the economy will grow by 3.7% in 2021 and 3.9% in 2022. If these forecasts are realized, “the euro area and EU economies are expected to reach their pre-crisis levels of output earlier than anticipated in the Autumn 2020 Economic Forecast” largely because “of the stronger than expected growth momentum projected in the second half of 2021 and in 2022”.
According to the EU, the economic impact of the pandemic remains uneven across Member States and the speed of recovery is also expected to vary significantly. In any case, despite the uncertainty, a better balance between threats and opportunities is expected from autumn onwards, pending, on the one hand, that the vaccination process will allow the relaxation of containment measures more quickly than expected, leading to an earlier and stronger recovery, and, on the other hand, the effects of the European recovery instrument NextGenerationEU. Among the less promising prospects, the EU warns that the pandemic could be more severe or persistent than expected in the short term and that there could also be delays in vaccination programs, which would delay the lifting of containment measures and affect the timing and intensity of recovery.
Spain
In the case of Spain, forecasts indicate that, after a fall of 11% in GDP in 2020 (the largest in the Eurozone and the EU as a whole), in 2021 it will experience growth of 5.6%, which will also be, in this case in reverse, the largest in the Eurozone and the EU as a whole. Within the Eurozone it is followed by France, with 5.5%, Slovenia, with 4.7%, and Malta, with 4.5%. Outside the Eurozone, Croatia (the third country in the EU total) stands out with 5.3%. With regard to 2022, the outlook is also promising for Spain, with a growth of 5.3%, which places our country in second place both in the Eurozone -only behind Malta and Slovakia, both tied for first place with 5.4%- and in the EU as a whole.
According to the Brussels report, the near-term outlook in Spain for 2021 is clouded by “the rise in infection rates in the first weeks of the year and the more restrictive measures put in place by most Spanish regions”. However, “as the vaccination process advances and restrictions are progressively lifted, economic activity should pick-up strongly, driven by the materialisation of pent-up demand over the second half of 2021″, which could help reduce the household savings rate and recover investment, “driven by improved expectations about the economy and lower uncertainty”. Also, a mild recovery in international tourism should contribute positively to net export growth in 2021. “Overall, GDP is forecast to grow by 5.6% in 2021”, Brussels adds.
By 2022, the Commission expects the tourism recovery to gain momentum and most of the impediments to activity to be “fully” lifted. Thus, despite the fact that domestic demand growth is likely to experience a moderation “once pent-up demand is reabsorbed,” the report forecasts “a still robust growth rate of 5.3%” over the next year.
Brussels also warns that a “downside risk” for the Spanish economy is that corporate insolvencies will increase, especially in the sectors most affected by the business slowdown, as the policy measures implemented by the government to protect employment and provide liquidity to companies during the first stage of the pandemic, which have been “extended several times and are expected to remain in place until mid-2021”, are lifted. “On the upside”, the Commission adds, “the forecast does not incorporate the impact of the frontloaded Recovery and Resilience Plan, which is expected to provide a significant boost to domestic demand as it is implemented”.
