CORONAVIRUS

Spanish economy falls 5.2% in first quarter, the biggest drop in nearly a century

The Bank of Spain estimates that GDP could retreat by between 6.6% and 13.6% this year due to the coronavirus crisis, which has grounded most business activity to a halt

A man walks past closed stores during the coronavirus lockdown in Spain.
A man walks past closed stores during the coronavirus lockdown in Spain.

Spain’s Gross Domestic Product (GDP) fell 5.2% in the first quarter of 2020 as a result of coronavirus confinement measures, according to an advance report released by the National Statistics Institute (INE) on Thursday. This is the largest quarterly drop in nearly a century. The last time such a figure was seen was after the Spanish Civil War (1936-1939), based on the estimates of specialist historians.

The biggest quarterly drop in recent times occurred in 2009, during the recession, when the Spanish economy fell 2.6% between January and March. The GDP is the best indicator to measure production in the country, and in turn, its wealth.

Trade, transportation and hostelry were among the worst affected sectors

In April, the Bank of Spain estimated that the coronavirus crisis would lead to a 4.7% fall in the first quarter. More alarm bells were sounded this week when the INE released figures on retail trade and active employment.

According to the INE, retail trade fell by 15% in March – a monthly figure that usually falls or rises by a few tenths of a point. This blow occurred despite the fact that Spain had only been under the coronavirus lockdown for two weeks, and that January and February were good months for business.

On Tuesday, the INE released the EPA active workforce survey which shows that employment figures in Spain fell by 285,600 people between January and March – the greatest drop since the recession of 2012. The survey also found that the number of hours worked had fallen 4.25% in the first quarter.

Worst yet to come

The figures from the second quarter are expected to be even worse. The outcome for the year will depend on the deescalation of the confinement measures, which have been in place since the Spanish government declared a state of alarm on March 14 in a bid to slow the coronavirus outbreak. According to the government’s plan, which was announced on Tuesday, businesses will be able to gradually reopen under strict conditions. But there is still great uncertainty, and the Bank of Spain estimated in April that Spain’s GDP could fall by anywhere between 6.6% and 13.6% this year. This would be an unprecedented fall: during the recession, between 2008 and 2013, Spain’s GDP gave up 9.5 points.

In a press release, the INE said that it had gone to extra lengths to accurately represent the impact of the confinement measures on economic activity in the last two weeks of March. Most indicators only offer results until February, so the institute included other sources, such as the use of credit cards. According to the Spanish bank BBVA, consumption has fallen by half since the declaration of the state of alarm.

A breakdown of the INE figures indicates dramatic falls across all areas. According to the quarterly report, consumption fell by 5.1%, household spending by 7.5%, investment by 5.3% and exports and imports by 8.4%. Public administration was the only area to see a rise in spending, increasing 1.8% in the first quarter, a rise not seen since 2007.

The sectors worst affected were trade, transportation and hostelry, which fell 10.9% in the first quarter. Artistic and recreational activities dropped by 11.2%, scientific and professional activities by 8%, information and communication by 5.5%, and construction by 8.1%. Public administration, health and education rose by 0.8%. Financial and insurance activities experienced growth of 1%.

English version by Melissa Kitson.

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