The recovery is gaining strength in an important part of the sectors, as shown by a good handful of economic indicators. The hours worked in the second quarter were only 1.4% percent below the same quarter of 2019, after having sunk close to 30%. Between April and May, GDP grew by 2.8% and recovers two thirds of what had been lost with the total stoppage of activity. In addition, 464,000 jobs were created. Of the 98 sectors on which the INE provides data, there are 45 in which the level of employment exceeds that of the same period in 2019, before the pandemic. Another fortnight is improving and is approaching pre-pandemic levels. And that is reflected in the total occupancy figure, which is only 3% below pre-COVID levels, including ERTEs. In the worst moments of this crisis, it fell by 7% and 20% if ERTE were counted.
By large headings, construction already has 3% more occupancy. Product logistics is well above pre-covid levels, driven by online shopping. Agriculture is maintained. Activity in information and communications companies is 5% higher. Financial activities, by more than 10%. And the professionals, 4%. Driven by public spending, they overcome the barrier of the crisis in health by 12%; education, 4%, and public administration, 3%. Employment in water supply and sanitation is already reestablished, and in energy, practically. On the other hand, there are still victims: the industry still yields 5%. The hospitality industry loses more than a quarter and commerce is 7% lower. The transport of people still has more than 10% to recover. Real estate activities, 9% and administrative tasks, 7%.
After the harsh restrictions imposed to combat COVID, there are two turning points that inevitably cause strong rises in the economy. One was the reopening, and that is precisely what is being seen in a substantial part of sectors, which are recovering as restrictions are lowered and vaccination advances. Even if infections increase, the economic impact is diminishing because communities are more reluctant to adopt severe restrictions that hinder activity. The other moment in which GDP will skyrocket will occur when foreign tourism returns, whose recovery is being delayed by the delta variant.
The reopening is already giving wings to a part of the economy. Despite the emergence of the Indian-origin strain, card spending continued to increase strongly in the week between July 19 and 25, according to BBVA data. The PMI manufacturing survey for June shows that the industry is recovering at the fastest pace in 23 years. Investment in capital goods is close to pre-pandemic levels. The Commission’s confidence indices have beaten pre-crisis levels. And tax collection up to June exceeds that of 2019 and indicates that national demand is making a steady progress, although at the end of the year revenues are likely to be somewhat lower due to the settlement of business losses in 2020.
“There are fewer hospitalizations than in previous waves. The population is less willing to alter their behavior and they have already adapted their customs. All of this is making the impact of the delta variant on the economy less than was feared, ”explains Francisco Vidal, Intermoney’s chief economist.
Domestic demand and exports of goods are performing better than expected. In part, they are compensating for the fact that tourism is not going to recover 50% of the prepandemic activity, as was expected before the spread of the delta variant. And this is what the forecasts are pointing to. Despite the fact that the strain may subtract a few tenths of growth due to the lower arrival of foreigners, Funcas recently raised its projection to 6.3% this year. And in that environment are the majority of forecasts: the Bank of Spain, the IMF, the Commission or BBVA. “Monetary policy will continue to support the recovery. And the prosecutor, too. They are two very important tailwinds that ensure robust growth until 2022 “, points out the economist José Carlos Díez.
Despite the lack of direct aid to companies, it seems that the ERTE and ICO cushion has been enough to allow the economy to reactivate once the reopening begins. The Government defends that the measures have spread, and for now the fear that the damage to the productive fabric is encrusted and hampering the recovery is disappearing. The data on credit delinquency from the Bank of Spain indicate that, for the moment, this is very limited in the most affected branches. And ERTEs are increasingly concentrated in certain sectors and regions, especially on the islands.
In addition, European funds will give an added boost to activity, probably already in 2022 as they are spent and reach the real economy. The agencies’ forecast is that for next year there will be robust growth again: from 5.8% for the Bank of Spain to 7% for the Government.
Living with the virus
A part of the economy works almost normally no matter how much you live with the virus. But even so, the other leg necessary for a full recovery is missing. The appearance of the delta variant has been noticed in tourism. May and June were already worse than predicted. And in Google searches for reservations, a certain downward trend has been observed in the last week among French and German tourists. Domestic tourism is not enough to compensate for the absence of foreigners, which is still a fifth of what there was before the coronavirus. Until it is corrected, we are witnessing an uneven K-shaped recovery, with some sectors gaining weight over others.
And there are still things to correct: there are about 400,000 workers in ERTE, of which 30% are working hours reduction. Some 75,000 companies have been lost, of which the majority were micro-SMEs with up to five employees. The unemployment rate is at 15.3% compared to 13.8% in the last quarter of 2019. And a part of the self-employed and entrepreneurs suffer from capacity or schedule restrictions and, therefore, lose income.
What is to come
The third quarter will depend a lot on tourism. And to the extent that it does not recover, there will likely continue to be vigorous growth but at a slightly slower pace. On the contrary, “if the hospital pressure does not get worse, it could play in favor”, highlights Vidal.
In any case, the scenarios are subject to a lot of uncertainty. Only on a global level does the US economy show signs of any cooling even though services have gone well. The delta variant is showing itself in Asia, affecting factories and international trade. Chinese ports are closing due to outbreaks and are overloaded. And bottlenecks such as the lack of semiconductors are stopping factories, especially the automobile.
In short, experts consider that the worst part seems to be behind us, but they point out that there are still risks and that the final exit may still be delayed. And in this context, the maintenance of monetary and fiscal stimuli will continue to play an essential role in the coming quarters to avoid any financial instability.