Considerations for Spain: Geopolitical risk on top of a challenging post-pandemic recovery
Fecha: mayo 2022
SEFO, Spanish and International Economic & Financial Outlook, V. 11 N.º 3 (May 2022)
Index
Russia´s invasion of Ukraine will have economic effects in the short-term through channels such as commodities, trade, and financial markets. Importantly, the current geopolitical conflict may also have serious implications over the longer-term by challenging globalisation, leading to a potential restructuring of existing supply chain networks.
The emergency measures rolled out in Germany, Spain, France and Italy to mitigate the impact of the war in Ukraine provide a short-term solution to the budding energy crisis. However, their long-term efficacy is questionable, and they also exacerbate tensions between inflation-curbing targets and energy model transformation ambitions, highlighting the importance of formulating a big-picture plan to transition away from the recent measures towards a long-term, sustainable energy strategy.
Although the recovery in Spanish GDP was somewhat less intense than initially expected in 2021, the recovery in employment was noteworthy and stronger than anticipated. Against that backdrop, two years after the onset of the pandemic, the financial health of Spain’s households remains solid, whereas that of the corporate sector has somewhat deteriorated.
The contraction in 2020 tax receipts as a result of the pandemic and the associated mobility and business restrictions was mitigated by the government´s crisis response measures. In contrast to the wake of the previous crisis of 2008, in the space of just one year, 2021 tax revenue increased 15.1%, topping pre-pandemic levels- a trend that, under current assumptions, is expected to continue into 2022, albeit at a slower pace.
The pandemic has accelerated the push towards digitalisation in Spain on multiple fronts. This trend has been particularly significant within the financial arena, with Spaniards increasing reliance on online banking and payments methods, as well as their interest in crypto-assets, while at the same time taking into account the growing importance of related security measures.
Spain´s public guarantee scheme has served to ease the effects of the pandemic and now of the war on the country´s business segment, thus containing the materialisation of non-performing loans. Going forward, while a potential increase in the incidence of business non-performance is expected in the near-term, the increase in NPL coverage should be mitigated by the strong provisioning efforts of the banks, together with their limited exposure thanks to the state guarantee scheme.
The COVID-19 crisis prompted a slowdown in business creation across all the main legal forms of incorporation, but underpinned a continuation of a trend observed even prior to the onset of the pandemic– a shift away from limited liability companies to individuals. In order to tackle the deterioration in business creation dynamics as a result of the COVID crisis, it will be necessary to take measures to foster business creation and entrepreneurship.