In the third and final article of 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.
GDP fall: 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 GDP into 15 branches of production from three main blocks: agriculture, industry and services.
- In the first column it values the weight of each in billions of euros
- In the second column, divide the figure by 12, to find the contribution to the fall of each industry during the three months of the expected crisis.
- The column drop/month includes an estimate of the percentage drop in each of the twelve months.
- In the column Equiv €, include the valuation in millions of euros of this decrease in activity.
- In the column %PIB reflects this figure as a percentage of GDP.
- The ranks Totals include the three-month summary of the impact of the coronavirus: the first month (4.3 per 100), the two-month summary (8.7 per 100), and finally the three-month summary (13 per 100).
- The total impact is estimated at a fall of 13 per cent of GDP. This figure is comparable to other countries that have already overcome the crisis, such as China's 12 per cent and Japan's 7.1 per cent.
This level of GDP decline will have a negative effect on employment. It is foreseeable that 500,000 people will become unemployed in the short term, depending on the redundancies announced, and this is taking into account the facilities that the state has announced for the survival of companies.
However, despite this fall, the recovery will be faster than during the 2008/2014 crisis. 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 the employed persons 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 seriousness of the problem. The European Commission announced in February 25 billion euros, a very low amount, in aid to companies and workers. Unlike the Fed in the US, which on 15 March set the System's base interest rate at zero, and provided 600 billion dollars to support the liquidity of companies, through the purchase of corporate bonds by the Fed in the secondary market, acting as the central bank in the US.
Subsequently, the president of the European Commission announced aid that could reach up to one trillion euros through purchases of government bonds and corporate bonds. But the positions in EU countries differ widely. Germany announced on 13 March a programme of unlimited public guarantees for loans to companies, and up to half a trillion euros to meet the resource needs of German companies.
In contrast, Spain's measures have so far been largely ineffective. The Royal Decree Law of 10 March provided for the following:
- Advance of 2.8 billion for the Autonomous Regions, to be included in future General State Budgets, if they are approved.
- 000 million euros for deferrals of payments to the Treasury by SMEs and the self-employed;
- Deferral of repayments for State loans to industrial enterprises, including those supported by the General Secretariat for Industry and Small and Medium-sized Enterprises;
- 400 million to avoid the debacle of the tourism sector, in an ICO line;
- Cost-saving measures for air transport, making air transport more flexible, and slotsThe new rules are designed to ensure that they are not lost due to the readjustments in the reduction of 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.
According to Tamames, these measures are not operational and are insufficient. 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, within a timeframe of up to six months. They involve resources amounting to 200 billion euros, of which 117 billion are public:
FAMILIES
- Moratorium on mortgage payments, to avoid evictions.
- Other state aid through local authorities (town councils and provincial councils).
WORKERS
- Working time adjustments to avoid redundancies
- Bureaucratic flexibility to speed up EREs and ERTEs, in no more than a week.
- Support for the self-employed in their social security payments
COMPANIES AND THE SELF-EMPLOYED
- 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 scientific programme to 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 made clear where the resources will come from, whether from the European Commission, the ECB, the EIB, the public debt, etc. Nor is there any mention of the likely rise in the public deficit from 1.5 per cent of GDP to 3 per cent. Nor is the role of the private sector in stimulus and support clarified.
Tamames highlights other positive aspects of the government's management of the crisis. The Minister of Labour 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 EREs and ERTEs, given the high number of redundancy plans that have been presented.
By 2020, the government had planned to spend 18 billion euros on unemployment benefits. This amount will have to rise, to cater for 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 is over, activity will recover fairly quickly, but not fast enough to avoid recession, rising deficits and expanding public debt.
Therefore, the government must now prepare and approve extraordinary budgets for 2020, including fiscal, economic, social and other measures, covering all aspects of the coronavirus crisis.
Ramón Tamames
Professor of Economic Structure
Jean Monnet EU Chair
From the Royal Academy of Moral and Political Sciences