Brussels forecasts a 10.9% contraction of Spanish economy in 2020

This is more than the 9.4% decline predicted in the spring, and it creates a wider gap between Spain and the euro zone

Valdis Dombrovskis, the European Commission’ executive vice-president for an Economy that works for People.
Valdis Dombrovskis, the European Commission’ executive vice-president for an Economy that works for People.JOHANNA GERON / REUTERS

Europe’s economic activity continues to sink to levels unseen since World War II. And Spain and Italy, the two European countries most affected by the coronavirus pandemic, will feel the pain more intensely than the rest.

The European Commission on Tuesday unveiled its Summer 2020 Economic Forecast, which projects that the Spanish economy will contract by 10.9% in 2020, largely due to the effects of confinement measures on the services sector.

This contraction is greater than the 9.4% that was forecast in the spring, and it represents a wider gap between the Spanish economy and the euro zone.

The Brussels report has reviewed its earlier forecast for gross domestic product (GDP) growth and inflation in Europe, and confirmed that “the economic impact of the lockdown is more severe than we initially expected,” in the words of Valdis Dombrovskis, the executive vice-president of the European Commission for An Economy that Works for People.

The report notes that the euro area economy operated at between 25% to 30% below its capacity during the period of the strictest confinement. Between April and June, the euro area economy is forecast to have declined by around 13.5%. For the year 2020 as a whole, the contraction is expected to be 8.7%, one percentage point above the previous forecast.

But the impact will not be the same across member states. While GDP contraction in Germany is expected to be in the range of 6.25%, this figure will be closer to 11% in Italy, Spain and France. “The differences in the scale of the impact of the pandemic and the strength of recoveries across member states are now forecast to be still more pronounced than expected in the Spring Forecast,” warns the Commission.

As for Spain, “the economic impact of the confinement in the first half of 2020 looks likely to turn out worse than expected in the spring forecast. This will not be fully offset by the rebound expected in the second half of 2020 as most restrictions to activity are lifted.” As a result, annual GDP is expected to contract by 10.9%, or 1.5% more than expected in the spring. In 2021, Brussels expects the Spanish economy to rebound by 7.1%.

The Commission warns, however, about the risk of a second wave of coronavirus infections that could disrupt this forecast. “The scale and duration of the pandemic, and of possibly necessary future lockdown measures, remain essentially unknown,” admits the report. On the other hand, “a swifter-than-expected rebound cannot be excluded, particularly if the epidemiological situation allows a faster lifting of remaining restrictions than assumed.”

English version by Susana Urra.

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