The Bank of Spain foresees an impact “very pronounced” by the coronavirus but “transitory”


TheBank of Spainestimates that the magnitude of the impact of the pandemic ofCovid-19, including from the “necessary” containment measures adopted, will be “very pronounced“on economic activity and employment in the short term, but”fundamentally transitory“, despite the high uncertainty regarding the intensity and duration of the disturbance.

In any case, it stresses that it must be faced with fiscal policy and an “ambitious, agile and coordinated” response, andthe volume to be reached in mobilized public funds is up to 8.8%, with a 0.5% increase in public spending.

This follows from thequarterly reportof the Spanish economy, prepared and published this Wednesday by the supervisory body, in which, unlike usual, medium-term macroeconomic projections of the Spanish economy are not collected due to the “unusually high uncertainty” caused by the crisis and the lack of indicators since the declaration of the state of alarm on March 14.

The supervisory body indicates that the economic evolution throughout the quarter has been conditioned in a “drastic” way by the worldwide spread of the Covid-19 disease, a “disturbance of unusual virulence” that has given rise to a public health challenge. of “first magnitude”, which has required the adoption of extraordinary measures to limit the mobility of people and the cessation of an important part of productive activity, “abruptly” changing the trajectory of the Spanish economy.

Before the epidemic reached Europe, its effects on the Spanish economy seemed “limited”, so despite “some impact” of the stoppage of activity in some regions of China on the demand for Spanish exports, he considers thatthe “true dimension of the problem” did not emerge until the end of February.

In this sense, he explains that the declaration of the state of alarm in Spain supposed a drastic limitation of the movements of people and the almost complete suspension of activity in some branches of services, such as hospitality or retail, or production. of some manufacturing branches, such as the automobile industry.

“Very significant” impact on employment but “recoverable”

At the demand level, he points out that there has been a “very pronounced” impacton household spending on consumer goods, which adds tothe “practical disappearance” of inbound tourism, while from the point of view of supply, interruptions in national and international supply chains and the “abrupt” decrease in demand have led to the closure of some industries.

Although there are no data evaluating the impact on employment, he warns that “very likely, it is being very significant”. In particular, it indicates that the available information indicates that companies are making “intensive use” of the employment regulation (ERE) files for shorter working hours and temporary suspension. Yes,believes “most of this job loss will recoverif, as expected, the nature of the disturbance is transitory. “

As a consequence of the deterioration of the outlook for economic activity and the increase in uncertainty, there has beena “very severe” impact on the evolution of financial markets, with a sharp drop in the stock market indices that has affected all sectors, with a “special impact” on the banking, energy and tourism sectors, as well as a “strong impact” on the sovereign debt markets.

However, it qualifies that, prior to the health crisis, the “favorable tone” of the economy was maintained in January and February. In fact, the agency’s models projected growth of around 0.4% for the first quarter, the report shows, highlighting that the data on Social Security affiliation showed a “notable improvement” and the behavior of employment was “somewhat better than expected”, although vehicle registrations continued to show a negative trend, in parallel with a decrease in the contribution of external demand to GDP.

In his opinion, the “first line of defense” to avoid the persistent economic effects of the epidemic must befiscal policy. To do this, it highlights that the main measures have been aimed at cushioning the impact of the crisis on the incomes of employed persons, applying a certain relaxation of criteria in the perception of unemployment benefits and through theexemption to companies of the payment of contributions, together with “large volumes” of guarantees and public guarantees.

“The objective of this type of measure is to facilitate access to financing for solvent private agents who are experiencing liquidity problems, preventing them from ending up in a state of insolvency, in which case the loss of activity and employment would be greater and more durable “, he values.

A “0.5% of GDP” of public gas

“In Spain, action has been taken on various fronts, analogous to that observed in other countries,” adds the Bank of Spain, which estimates that the volume of mobilized public funds would reach8.8% of GDP. Of this total volume,0.5% of GDP represents a direct increase in spending, while the rest is destined to grant guarantees and lines of credit to companies.

These percentages include the3.8 billion increase in the budget allocation to meet health spendingderived from the pandemic, the 600 million in social protection for the provision of services to vulnerable groups, labor and tax measures and the 100,000 million in public guarantees.

“The depth of the short-term economic decline and its persistence in the coming months will largely depend on the success of this battery of measures, on which there is no historical experience comparable to the current case.”

In his opinion,the “speed” and “vigor” of the subsequent recovery will depend “crucially” on monetary policy measuresput in place to mitigate the effects, and advocates that the “proportionate” response be “ambitious, agile and coordinated between the authorities responsible for the different areas of economic policy”.

Brussels “backing”

Thus, he considers that the role of national governments is “crucial”, buttheir actions require “decisive support for supranational economic policies”, and especially in the euro area, because otherwise “its effectiveness could be limited in those countries that have less budgetary margin.”

With this objective in mind,the emergency purchasing program of some 750,000 million euros announced by the ECB, which is added to the relaxation of the capital and liquidity requirements applicable to entities.

“The magnitude of the challenge requires that the community authorities also make a decisive contribution to overcoming it,” he insists, stressing that the action of the European Commission must be “more determined” as it is “a common challenge for euro area countries and Europe. “

In his opinion, “coordinated and solidary” action is needed that makes use of the budgetary and financial tools already in place at European level – includingthe mobilization of 500,000 million from the ESM– but also consider the possibility of introducing elements for the mutualisation of budgetary risks, as well as joint economic and social coverage instruments, such as a European unemployment fund.


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