The IMF’s latest forecast predicts the economy in the tourist hotspot, along with Italy, will shrink by as much as 12.8 percent this year. The agency has cut its previous forecasts on the Spanish economy by almost five points and is the largest downward revision – second only to France – among developed countries, but will rebound with growth of 6.3 percent in 2021. Just a few months ago, when the coronavirus pandemic was in its early stages, updates on the future of major economies were few and far between as experts and analysts awaited the full impact of the crisis.
But now the peak of the virus has hit and following the enforcement of lockdown measures throughout the world, the IMF has downgraded its financial estimates for 2020, with the GDP of advanced countries forecast to fall by eight percent on average – almost two points more than predicted in April.
Spain and Italy stand out, with their economies expected to plummet by a huge 12.8 percent in 2020, making them the two most severely impacted in Europe.
For Spain, this would be the biggest drop since the start of the Spanish Civil War in 1936, when it nosedived by a massive 26.8 percent.
But the projected fall for this year would blow a huge €160billion hole in the country’s economy, based on the GDP calculated at the end of 2019.
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The IMF has forecast the GDP in Germany – home to the EU’s largest economy – will shrink by 7.8 percent in 2020, while the UK, which will leave the bloc at the end of this year, will see its economy contract by 10.2 percent.
In all cases, the Fund has revised down its estimates – Spain taking a huge blow with a 4.8 point difference from the estimates made in April.
Only France has experienced a sharper downward revision: from 7.2 percent two months ago to the estimated 12.5 percent now.
But the IMF also expects a quicker than expected recovery for more of the EU in 2021, with the Spanish economy set to rebound 6.3 percent compared to the 4.3 percent growth estimated in April.
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This would mean the strongest growth among developed countries, with the economies in the UK and Italy set to rebound at the same rapid rate, and would be second only to France, with GDP forecast to grow by 7.3 percent next year.
The Spanish Government has estimated a more moderate drop this year of 9.2 percent and more generous progress in 2021, with growth of 6.8 percent.
In a document published last week, the Bank of Spain estimated that the drop in activity in the first two weeks of lockdown was a massive 34 percent, compared to the average of 21 percent in the eurozone.
The services sector shrunk by as much as 50 percent, while the transport and hospitality category – heavily influential in the Spring and Summer months by tourists – plummeted by 71 percent.
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Referencing the update from the IMF, President Pedro Sanchez acknowledged that “economic forecasts predict a dark horizon”.
The IMF, as well as a number of other financial institutions, have had to heavily revise their calculations for economies around the world as the uncertainty and damage generated by the coronavirus crisis begins to become more evident.
This is regarded as been hugely different from the financial crisis of 2008 in terms of its nature and the intensity of its impact, both in the contraction and resulting growth the following year, as well as the speed and magnitude of the response that countries are providing to limit the damage.
From the start of the coronavirus pandemic, the Spanish Government decided to enforce lockdown restrictions that were a lot stricter than those from some of its European neighbours, according to a recent study by Oxford University.
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The consequence of this has been it taking a lot longer to kick-start the Spanish economy as lockdown measures are gradually eased.
The Spanish business sector is heavily weighted towards SMEs, who have less muscle to overcome crises and are strongly dependent on tourism, and represent around 12 percent of all GDP in the country’s economy.
This consequently makes it one of the most impacted areas from the pandemic and resulting lockdown, making it harder to take the huge hit and magnifying any crisis.
Additional reporting by Maria Ortega.