Bank of Spain issues pessimistic forecast for post-pandemic economic recovery

Spain’s central bank on Wednesday predicted that the country’s economy would struggle to recover from the effects of the coronavirus pandemic, with the gross domestic product (GDP) falling between 10.5 percent and 12.6 percent in 2020 and only growing by between 4.1 and 7.3 percent in 2021.

The Bank of Spain explained that it is hard to issue completely accurate predictions without knowing how the pandemic will develop or when a COVID-19 vaccine or effective treatment will become available.

The Spanish economy shrank by 5.2 percent in the first quarter of 2020 and then by 18.5 percent between April and June as the country spent weeks in lockdown to halt the first wave of COVID-19.

The central bank expects a rise of between 13 percent and 16.6 percent in GDP for the third quarter of the year, but stresses that the sharp increase in COVID-19 cases in the wake of the easing of lockdown restrictions has had a negative effect on its expectations.

Given the uncertainty, the Bank has produced best- and worst-case scenarios, with the best-case scenario predicting the GDP will contract by 10.5 percent in 2020 before growing by 7.3 percent in 2021 and then by 1.9 percent in 2022.

A more negative scenario presented by the bank would see GDP slide by 12.6 percent this year before improving by 4.1 percent and 3.3 percent in 2021 and 2022, respectively.

The performance of the tourism sector, which is responsible for 12 percent of GDP and 11 percent of all jobs, will have a major impact on how Spain performs in 2021.

Due to the adverse effects of the coronavirus on the tourism sector and the high number of temporary contracts in the country, unemployment will also continue to rise to between 22.1 percent in the worst-case scenario and 19.4 percent if the recovery is more rapid, according to the central bank.