Spain: Economy contracts at another historic pace in Q2 on Covid-19 blow
July 31, 2020
The economy contracted at yet another unprecedented pace in the second quarter as the Covid-19 outbreak and strict lockdown measures decimated activity. According to a preliminary reading, GDP plummeted 18.5% on a seasonally-adjusted quarter-on-quarter basis in Q2, more severely than the 5.2% contraction recorded in Q1—which had already marked a record drop. The hit to activity was greater than market analysts had expected and deeper than major Eurozone peers. In year-on-year terms, economic activity collapsed 22.1% in Q2 (Q1: -4.1% yoy).
The downturn reflected heavy contractions in both domestic and foreign demand. Household spending plunged 21.2% on a quarterly basis (Q1: -5.2% qoqsa) as confinement measures shuttered non-essential businesses activity and shut down consumption. Moreover, fixed investment sank 22.3% quarter-on-quarter (Q1: -5.7% qoqsa) on diving residential, and machinery and equipment investment. Meanwhile, government spending lost significant pace, expanding 0.4% from the previous quarter (Q1: +1.8% qoqsa).
The external sector was likewise pummeled. Exports of goods and services crashed 33.5% (Q1: -8.2% qoqsa), largely the result of the vital tourism industry grinding to a halt amid widespread travel restrictions. Similarly, imports tanked 28.8% (Q1: -6.6% qoqsa) on depressed domestic demand. Taken together, net trade deducted more heavily from the headline reading compared to the first quarter.
Commenting on the economy’s prospects ahead, George Buckley and Chiara Zangarelli, research analysts at Nomura, noted:
“…with increased virus numbers having a clear effect on mobility in Spain in particular the chances of Spain’s economy pulling away quickly from the contraction in the first half of the year appear low. Indeed, even if we do not see a second wave of the virus, we do not expect the recovery to look V-shaped, but rather like a truncated-V, taking some time (and beyond our current forecast horizon of end-2021) for GDP to regain its 2019 Q4 levels”.
The INE will release the second GDP estimate on 23 September.
Author: Javier Colato, Economist