In the third and final article in the series, Ramón TamamesProfessor of Economic Structure, Jean Monnet Chair of the European Union and member of the Royal Academy of Moral and Political Sciences, estimates the extent of the recession in Spain and analyses the policies being implemented to combat it.
Fall in GDP: 13% in three months
Tamames' estimate of the fall in Spanish GDP is shown in the graph below, based on a series of criteria:
- It breaks down the GDP into 15 branches of production from three main blocks: agriculture, industry and services.
- In the first column it values in billions of euros the weight of each
- In the second column, divide the figure by 12 to find out the contribution of each branch to the fall during the three months of the forecast crisis.
- In the column fall/month, it includes an estimate of the percentage fall in each of the twelve months
- In the Equiv. column, it includes the valuation in millions of euros of this decrease in activity.
- In the %GDP column it reflects this figure as a percentage of GDP.
- The Total rows include the summary of the impact of the coronavirus in three months: that of the first month (4.3 per cent), that of two months (8.7 per cent), and finally, that of three months (13 per cent).
- The total impact is estimated to be a 13 percent drop in GDP. This figure is comparable to other countries that have already overcome the crisis, such as China (12 percent) and Japan (7.1 percent).
This level of decline in GDP will have a negative effect on employment. It is foreseeable that 500,000 people will become unemployed in the short term, depending on the announced EREs, and this taking into account the facilities that the State has announced for the survival of companies.
However, despite this fall, recovery will be faster than during the last crisis 2008/2014. Tamames believes that a few months will be enough, because there is no systemic crisis in Spain, neither in the credit system nor in the labour market.
The following table details those employed in Spain, 19,967 million in December 2019, distributed by branches of activity.
Insufficient measures
The measures taken so far, according to Tamames, are not commensurate with the severity of the problem. In February the European Commission announced 25 billion euros, a very low amount, in aid to companies and workers. Unlike the Fed in the US, which on March 15 set the system's base rate at zero, and provided $600 billion to support corporate liquidity, through the purchase of corporate bonds by the Fed on the secondary market, acting as the central bank in the US.
Subsequently, the President of the European Commission announced aid that could reach one billion euros through purchases of Public Debt and corporate bonds. But the positions in EU countries differ greatly from each other. On 13th March Germany announced a programme of unlimited public guarantees for loans to companies and up to half a billion euros to meet the resource requirements of German companies.
On the other hand Spain's measures have so far been ineffective. The Royal Decree-Law of 10 March provided for the following:
- Prepayment of 2.8 billion for the Autonomous Communities, to be included in the future General State Budget, if it is approved.
- 1,000 million for deferral of payments to the Treasury by SMEs and the self-employed;
- Deferral of repayments for State loans to industrial companies, including those supported by the General Secretariat for Industry and Small and Medium-sized Enterprises;
- 400 million to avoid the tourism sector's debacle, in a line from the ICO;
- Saving measures for air transport, making slots more flexible, so that they are not lost due to readjustments in the decrease in the number of flights;
- Return of unused tickets sold by Renfe, without surcharges;
- Reinforcement of competition in the markets, by the CNMC, to avoid price abuses in basic products.
Insufficient and ineffective measures, according to Tamames. For example, the ICO credits already included loans to compensate for the closure of the tour operator Thomas Cook.
The second Royal Decree-Law of 18 March 2020 includes more far-reaching measures, with a time frame of up to six months. 200 billion, of which 117 billion is public money:
FAMILIES
- Mortgage payment moratorium, to avoid evictions.
- Other State aid through local entities (town halls and provincial councils)
WORKERS
- Adaptations of working hours to avoid layoffs
- Bureaucratic flexibility to speed up SRAs and RTAs, in no more than a week
- Support for self-employed workers in their social security payments
COMPANIES AND FREELANCERS
- Deferral of social security contributions
- Availability of liquidity with a line of State guarantees for loans to exporters and SMEs for 100 billion euros
- Support for the digital economy and R&D&I
RESEARCH
- 30 million euro scientific programme for CSIC and Carlos III University for research on the virus
This second package of measures does seem to have got to the heart of the matter, although it does raise some doubts. It is not clear where the resources will come from, whether from the European Commission, ECB, EIB, Public Debt, etc. Nor is there any mention of the probable rise in the public deficit from 1.5% of GDP to 3%.
Tamames highlights other positive aspects in the government's management of the crisis. The labour minister met on 22 January with the CEOE and CEPYME, as well as the majority trade unions CC.OO. and UGT, agreeing on measures to guarantee unemployment protection. Specifically, the need to speed up the procedures for SEEs and RETEs, given the high number of regulatory procedures that have been presented.
By 2020, the government had planned to spend 18 billion euros on unemployment benefits. This amount will have to increase, in order to attend to the 500,000 new unemployed. Tamames estimates the total number of unemployed in Spain after the pandemic at 4 million.
Conclusions
The 13% fall in GDP is the worst impact of this crisis, in contrast to the 1.5% rise forecast before the pandemic. Tamames believes that when the health problem ends, activity will recover somewhat quickly, but not quickly enough to avoid recession, increased deficits and expanding public debt.
Therefore, from now on, the Government must prepare and approve extraordinary budgets for 2020, which include fiscal, economic, social and other measures, covering all the aspects of the coronavirus crisis.
Ramón Tamames
Professor of Economic Structure
EU Jean Monnet Chair
From the Royal Academy of Moral and Political Sciences