La sagrada familia in Spain

Spain Politics March 2020

Spain: Government unveils economic relief package to combat coronavirus crisis; outlook turns bleak

In a bid to blunt the economic blow dealt by the country-wide lockdown imposed to contain the coronavirus crisis, on 17 March authorities unveiled an economic emergency plan to the tune of EUR 200 billion. Prime Minister Pedro Sanchez described the package, which comes in addition to some EUR 18 billion announced on 12 March, as the “biggest mobilization of resources in the country’s democratic history”. The largest amount, worth EUR 100 billion, has been designated for state loan guarantees to businesses to safeguard liquidity and prevent bankruptcy. Spending worth EUR 17 billion, meanwhile, has been assigned for relief measures towards vulnerable groups, and the remaining EUR 83 billion will be raised by private money on the back of the loan guarantees.

The most noteworthy measures include a moratorium on mortgage and utility bill payments for households whose incomes were hit by the crisis; making it easier for businesses to temporarily lay off workers and enabling them to claim unemployment benefits; an injection of EUR 600 million to help vulnerable groups and to ramp up social services; deferring SMEs’ and self-employed tax obligations by six months; and shielding Spanish companies in strategic sectors from being taken over by non-European firms amid tumbling share prices.

Despite the massive nominal size of the package, it will not necessarily leave a gaping hole in the fiscal accounts: The lion’s share is comprised of credit lines and loan guarantees, which if tapped and paid back by businesses, the effect would be more or less limited. That said, the actual spending in this package, which is geared mainly towards mitigating a temporary shock, combined with a decline in tax revenues due to the fall in activity, do pose risks to the country’s fiscal standing ahead. In addition, authorities have hinted at yet more stimulus measures further down the road as part of a larger economic recovery plan.

The economic impact of the Covid-19 crisis and consequent lockdown remains highly uncertain as it will largely depend on how long the pandemic and containment measures last. Irrespective, the outlook has gravely deteriorated amid shriveling demand and business activity screeching to a halt, posing major risks to the operation of small businesses, which form the backbone of the economy, and to the vital tourism industry which has become the country’s engine of growth.

Commenting on the impact of the pandemic, Steven Trypsteen, Spain and Portugal economist at ING, highlighted:

“This crisis will have a large effect on economic activity in Spain, even though the government took some unseen measures to combat it. If the spreading of the virus can be stopped soon, then the economy could bounce back sharply in the second quarter already. If it lasts longer, then a prolonged crisis is possible. For now, we hypothesize that the measures taken to combat the virus will be effective and that the spreading of the virus will ultimately follow a similar path as in China. This implies that the spreading will be managed by mid-April. The second quarter could therefore see a less negative year-on-year growth figure compared to the first quarter. There is a risk, however, that tourists cancel their summer holidays and that the third quarter is still negatively affected.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest