The Spanish economy: Outlook for recovery

The Spanish economy: Outlook for recovery

Fecha: november 2020
SEFO, Spanish and International Economic & Financial Outlook, V. 9 N.º 6 (November 2020)

Index

The potential impact of a COVID-19 vaccine on the Spanish economy
  • Prevailing trends in Spain’s economy include the divergence in performance between the manufacturing and services sectors, as well as the rise in precautionary savings among households. A vaccine would tackle both recessionary factors and help GDP return to pre-crisis levels by early 2023, one year earlier than in a no-vaccine scenario.
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The NGEU recovery package in Spain: Structural challenges and proposal analysis
  • While the Next Generation EU (NGEU) recovery package was launched to counteract the economic ramifications of COVID-19, its success will depend on reversing the divergence between the economic performance of Spain and the EU, which pre-dates the crisis. Unfortunately, the biggest obstacle to achieving this will be the timing mismatch between the urgency of the situation and the long-term nature of any recovery initiatives.

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Spain’s fiscal context: A regional perspective
  • While the Spanish general government deficit is forecast at 12.4% this year, the regional governments posted a surplus during the first eight months of the year. However, the regional governments’ finances will experience greater pressure in the following years, necessitating reform of both the regional financial system and Spain’s overall tax system.
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Foregone revenues in respect of Spain’s key taxes
  • As a result of tax breaks for personal income tax, value-added tax, and corporate income tax, the Spanish government foregoes 77.18 billion euros worth of revenue each year. However, closer analysis shows there is room to rationalize existing tax benefits in order to increase the efficiency and simplicity of the Spanish tax system.
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Taxing the digital economy: Is the DST the right solution?
  • Given the lack of progress on an EU-wide proposal, increasing digitalization of commerce has prompted several Member States to adopt their own Digital Services Tax (DST). Going forward, should agreement be reached at the international level, this would help address some of the unique structural and design challenges associated with DSTs, enhancing the overall efficacy of the tax.

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Consolidation in the EU banking sector: Scope and timing
  • After several years of limited consolidation across the European banking sector, the announced merger between CaixaBank and Bankia has bolstered expectations of renewed M&A activity. This expectation is further supported by the existence of surplus capacity, digitalisation trends, and the economic consequences of COVID-19 for banks.

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Net interest income in the context of COVID-19
  • COVID-19 has contributed to both a significant uptick in business lending and a slowdown in household lending. While the overall stock of credit issued has increased, net interest income during 1H2020 contracted thanks to the negative contribution of average loan book rates.

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