Funcas, the study service of the former savings banks, foresees that the delta variant of the covid will drain about three tenths of growth from the Spanish economy due to its impact on tourism. Even so, he expects activity to grow now more than he expected in May: a robust 6.3% compared to the 6% he estimated two months ago. There are three reasons for this improvement and they are linked to the advance of vaccination: first, the disallowance of the savings that accumulated during the pandemic and that are being spent with more intensity than expected. The savings rate is falling more than expected, says Funcas.
Second, the return of mobility, which is having positive effects on tourism. And third, the important global recovery. “These are the three pillars of recovery,” said Funcas’ business director, Raymond Torres.
This strong improvement in demand, which had been constrained, will mean that GDP will grow more this year. But it will also cause consumption to be somewhat lower than anticipated next year and, together with lower investment in construction, it will make the economy grow by 5.8% in 2022 instead of the 6.2% predicted in May. says the study service.
And this year’s recovery would have been even more intense had it not been for several factors. The delta variant will drain about three tenths of GDP this year. During the last week of June there were 55% of the hotel reservations of a normal year. However, in that of July 4, the percentage stood at 47%. The shock of the delta variant is beginning to be noticed and that has led Funcas to lower its expectations about tourism somewhat, which in the third quarter will be around 40% of what there was before the pandemic. In the fourth quarter it will be at 50%. And it will continue to improve little by little until reaching 85% in the third quarter of 2022. However, the imposition of new recommendations could frustrate those forecasts, warns Funcas.
Inflation will also depress the rebound. Funcas recalls that the rising cost of production detracts from purchasing power and, for each additional point of inflation, one point of demand from the Spanish economy will be lost. The inflation forecast reaches 2.5%. And while recovery will drag somewhat, it is more of a transitory effect that will ease as the lack of supplies in semiconductors and raw materials is fixed. For next year, the estimate is that the CPI will soften to an increase of 1.6%.
Another factor is the delay in the expenditure of European funds due to the length of the negotiations. Funcas estimates that about 10 billion will be spent this year, about 4 billion less than initially expected. The Government had planned in Budgets about 27,000 million. And for next year the think tank it does maintain its forecast that 26,000 million will be disbursed.
Regarding employment, it will recover its pre-crisis levels at the end of 2022. But the number of unemployed and the unemployment rate will be even higher. In these two years, an increase in employed persons is expected by about 500,000 according to the labor force survey. And this figure includes 45% of the 450,000 who were in ERTE at the end of June. The remaining 60% will remain unemployed or go into inactivity, he predicts.
Despite the fact that the economy will recover its prepandemic levels at the end of the year, in Funcas’s opinion, two important challenges will remain: the chronification of unemployment, which will still be at 14.3% at the end of the forecast in 2022, and the high debt public, which will stagnate at around 120% of GDP.
The Spanish economy will maintain double the debt than the German one, four times more unemployment and a fiscal deficit that will remain high, around 4.5% of GDP. “Under these conditions it is difficult to maintain a welfare state and leaves Spain in a delicate situation if monetary policy is tightened,” recalled Carlos Ocaña, CEO of Funcas.
There are 1.4 million employed persons to close the gap with the rest of Europe. And the growth shock wave caused by the rebound will last until 2022. But beyond that, growth will have to be sustained by European funds and the normal functioning of the economy. Hence, it is necessary to reform the recovery plan and ensure that community resources are invested in transformative projects and that make them gain competitiveness, emphasizes Funcas.