Bank of Spain Sees Economy Shrinking as Much as 15% in 2020

(Bloomberg) --

Spain’s economy could shrink this year by as much as 15% in a worst-case scenario, according to the country’s central bank, a contraction that would be among the steepest in the euro area.

Spain has had one of the strictest coronavirus confinements in the region and is among the most dependent on tourism, which leaves the region’s fourth-largest economy particularly exposed to the unprecedented shock caused by the global pandemic.

Bank of Spain Sees Economy Shrinking as Much as 15% in 2020

The Spanish economy is also vulnerable because it has a large share of small companies, and employers rely in many cases on temporary workers, which means an immediate and massive shedding of jobs in an economic crisis.

According to the Bank of Spain, the jobless rate -- already at 14% before the pandemic -- could jump to between 18.1% to 23.6% this year. Even in the best-case-scenario, it would remain above 17% through 2022.

With consumer prices falling, the central bank’s economists said they’re concerned about a negative impact on inflation expectations, particularly if demand doesn’t recover as forecast. That echoes a warning from Governor Pablo Hernandez de Cos in a Bloomberg interview last week.

Hernandez de Cos said fears of deflation justified the European Central Bank’s decision to ramp up its emergency bond-buying program by 600 billion euros ($676 billion).

In its projections, the central bank sees the economy shrinking between 9% and 15% this year. That’s based on assumptions about the survival rate of businesses and the possibility of a new outbreak.

Spain’s restrictions were concentrated in March-May and are now gradually being lifted. The economy will probably shrink between 16% and 21.8% this quarter.

©2020 Bloomberg L.P.

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