Spain’s economy and financial sector in the face of COVID-19: Assessing the impact and perspectives
Fecha: septiembre 2020
SEFO, Spanish and International Economic & Financial Outlook, V. 9 N.º 5 (septiembre 2020)
Sumario
[expand title= "Spain’s macro outlook: Rising COVID-19 cases dampen economic forecasts"]In the context of controlled growth in COVID-19 cases and sluggish performance in key sectors, such as tourism, a downward revision of Spain’s forecasts shows a 13% contraction expected for 2020, with pre-COVID growth levels unlikely to return before 2023. The European recovery fund could support Spain’s recovery, but its impact will be limited and short-lived, unless it is accompanied by key reforms.
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Although home purchases and prices have fallen as a result of COVID-19, it is unlikely that the market will experience a collapse. However, the recovery may be uneven across regions and types of property, with low interest rates and lower average prices relative to peer countries supporting the market in Spain’s urban areas.
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Similar to the effects observed during the financial crisis, COVID-19 has significantly disrupted global export markets, with Spain’s total exports and number of exporting firms having fallen during the lockdown. Looking forward, any recovery in Spain’s export sector will depend on the duration of uncertainty and number of firms who survive the crisis.
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The lax monetary environment, coupled with government initiatives, has enabled Spain’s banks to play a crucial role in tempering the effects of COVID-19. A key concern going forward, however, will be how long such interventions should continue and the extent to which they have fostered the emergence of a more dynamic business environment.
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The EBA’s postponement of the 2020 stress tests due to COVID-19 comes at a time of growing debate about the effectiveness of their methodology. Unlike the EBA, the Fed went ahead with its stress tests this year, offering potential insight into how the EBA could possibly reform its tests for 2021.
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Although overall household indebtedness has fallen below the eurozone average in Spain, certain subsegments of Spain’s population remain financially vulnerable. With the Bank of Spain forecasting a rise in the unemployment rate to 22.1% in 2021 under its worst-case scenario, vulnerable groups such as those with lower levels of education, households headed by a single parent, and youth will require targeted measures to protect them from the adverse consequences of COVID-19.
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COVID-19 has resulted in a series of downward revisions of Spain’s economic forecasts, with current projections indicating a sharp rise in both the government deficit and stock of debt. As a result, it could take Spain until 2050 to bring public debt below 60% of GDP.
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Advocates of a financial transaction tax (FTT) believe it could help curtail excessive risk and market volatility, despite the potential adverse consequences for both investors and financial markets. Recently, some EU Member States introduced their own FTTs, which could imply certain risks and drawbacks compared to an EU-level initiative.
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