Spain’s bumpy post-COVID-19 recovery
Fecha: November 2021
SEFO, Spanish and International Economic & Financial Outlook, V. 10 N.º 6 (November 2021)
Spain’s sluggish post-pandemic recovery
Spain’s economic recovery is proving weaker than initially predicted, with 2021 growth now projected to come in 1.2 percentage points lower than in the previous forecast. Inflation will continue to be a key source of risk, with the potential to further undermine household and business purchasing power.
Spain’s recent performance implementing the recovery funds and outlook for 2022
Spain is set to received 140 billion euros as part of the Next Generation EU funds to facilitate the country’s recovery from the COVID-19 crisis, with a focus on the green and digital transitions. So far, progress on executing plans to use these funds has been uneven, with investments and reforms expected to ramp up in 2022.
Lagging productivity and the need for structural reforms in Spain
Spanish productivity has lagged both the US and eurozone for the past two decades due to lower investment in key areas, such as technological and human capital, among others. Although the European recovery funds should facilitate investment in areas like digitalisation, structural reforms will also be necessary to boost Spain’s productivity growth.
The emergence of cryptoassets provides both risks and opportunities for investors, banks and central banks alike. However, determining the ideal design and regulation of these assets, as well as anticipating any potential risks, will be key to minimizing financial system disruption and maximizing the associated benefits.
The pandemic and its impact on the insurance business in Spain
The impact of the pandemic on the insurance industry was significant, if uneven, across both geographies and business lines. While the industry is showing signs of recovery, forecasts are predicated on the normalisation of claims and the continuation of financial market stability.
Spain’s state budget for 2022 includes forecasts that appear markedly optimistic in comparison to other institutions’ estimates. Despite this, an increase in structural spending is likely, which casts doubt on the government’s ability to meet its deficit reduction targets.
Social Security budget for 2022: Short-term state support yet a need for structural reform
Thanks to the increase in contributions, the Social Security deficit is projected to fall to 0.5% in 2022. However, the long-term sustainability of Spain’s Social Security will require action on both the expenditure and revenue side that goes beyond recent initiatives.
Fiscal imbalances in Spain: Progress and risks
Spain’s 2020 deficit came in better than expected, with analysts’ projections for 2021 more favourable than current government estimates. That said, risks relating to an ageing society, an entrenched structural deficit, and a permanent increase in spending mean Spain requires a credible fiscal consolidation plan.