Bank of Spain headquarters in Madrid. Picture: WIKIMEDIA COMMONS
Bank of Spain headquarters in Madrid. Picture: WIKIMEDIA COMMONS

Madrid  — Spain's recovery from its economic recession will be slower than expected after a surge in coronavirus infections weighed on activity in the third quarter, likely delaying a return to pre-pandemic levels until 2023, the central bank said on Wednesday.

“The slower acceleration in 2020 than our forecast means a worse starting point for growth in 2021,” Oscar Arce, chief economist at the Bank of Spain, told a news conference.

The Bank expects GDP to rebound between 13% and 16.6% in the third quarter after it shrank 18.5% in the preceding three months, but it was still likely to be 9.5%-12.3% below 2019’s levels.

The forecast is based on a scenario of smaller localised outbreaks and another one of a wider lockdown. The bank now expects the economy to contract up to 12.6% in 2020, which compares to its previous central estimate of 11.6% in June.

In 2021, it expects growth to be between 4.1% and 7.3%, down from its previous forecast of 9.1%.

“The third quarter has not been buoyant, we have gone from more to less. ... We see more downside risks of ending up worse than the economic forecast interval,” Arce said, naming a no-deal Brexit as one of the key risks.

The bank forecast a slowdown in growth in 2022 to 1.9%-3.3%.

The projections did not factor in the potential availability of a coronavirus vaccine or the use of the European recovery fund, which could speed up the recovery. Spain is entitled to €140bn of EU grants and loans.

Alongside Britain, Spain’s economy contracted the most during the lockdown phase and its recovery looks slower than for the rest of the EU, mostly due to its heavy reliance on tourism.

“The data on foreign travellers offers a Dantesque view,” Arce said. Tourist arrivals began to decline again in early August due to stricter travel rules abroad.

The budget deficit, which the central bank projects at 10.8% in 2020 in its best-case scenario, should shrink only slightly to 7% in 2021, the bank said.

With more than 600,000 cumulative infections and 30,000 deaths, Spain is the worst-hit country in Western Europe.


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