Spain will be developed country hardest hit by Covid-19 crisis, says IMF

Spain and Italy will be the developed countries to take the biggest economic hit from the coronavirus pandemic in 2020, according to new figures released by the International Monetary Fund (IMF).

Spain’s output is projected to shrink by 12.8% this year, the biggest decline since the Spanish Civil War of 1936-1939. Italy’s economy is also expected to retreat 12.8%, with France following closely with a drop of 12.5%.

Spain’s anticipated output for 2020 is now nearly five percentage points lower than what the IMF was projecting in April. On the other hand, in 2021 the Spanish economy is expected to rebound by 6.3%, up from 4.3% in April.

The IMF on Wednesday released its latest World Economic Outlook (WEO) update, which reviews its April forecast downward because “the Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.”

Prime Minister Pedro Sánchez alluded to the IMF report on Wednesday, saying that “the economic forecasts are predicting a dark horizon.”

Rollercoaster

It used to be that economic updates normally changed by a few tenths of a point, but the coronavirus pandemic has turned these projections into a rollercoaster of numbers. “As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast,” warned the IMF about its latest report.

Global growth is projected at –4.9% in 2020, 1.9 percentage points below the April forecast, but the figures vary significantly depending on the region and country. In the euro zone, output is expected to drop by 10.2%, with Spain, Italy and France surpassing that figure, and Britain equaling it.

The anticipated 12.8% contraction of Spain’s economy represents the biggest drop since the Civil War, when output declined by 26.8%. It is even bigger than the accumulated contraction during the years that Spain struggled through the Great Recession that began in 2008.

To put it in perspective, the contraction represents around €160 billion, calculated in terms of gross domestic product (GDP) at the close of 2019. This is more money that the Spanish state paid out in 2019 on public pensions.

In 2021, the Spanish economy is expected to advance 6.3%, the same as Italy and Britain. Only France, with a 7.3% jump in output, will outperform them, according to the latest IMF forecast.

The Spanish government was in May anticipating a more moderate contraction of 9.2% for 2020 and a 6.8% recovery for 2021.

Stricter measures

Part of the reason why the Spanish economy is expected to suffer so intensely is due to confinement measures that were stricter here than in other countries, which also meant that the economy reopened later.

But there are structural reasons as well, given that over 95% of Spain’s business fabric is made up of small and medium-sized businesses that had a harder time surviving the three-month lockdown than large companies. And tourism, which contributes 12% to GDP, ground to a halt during this time.

The Bank of Spain recently estimated that the Spanish economy contracted by as much as 34% during the first two weeks of confinement, compared with the euro zone average of 21%. The services sector retreated 50%, while the category that encompasses commerce, transportation and the hospitality industry sank by 71%.

English version by Susana Urra.