Catalan and Spanish economies fail to bounce back (enough)

Brussels downgrades its forecasts for Spain and the independent fiscal authority casts doubt on Sanchez's budget

The coronavirus continues to take its toll in economic terms. The second wave of the epidemic has aggravated the situation, so that the Catalan and Spanish economies can't get back on their feet. The new semi-confinement measures, so necessary yet surely applied too slowly and hesitantly, are further punishing an economy which is otherwise too dependent on the tourism sector. If the European Commission's technicians had initially calculated that the Spanish economy would fall by 10.9% in 2020, now those bad omens have worsened and they place the collapse of the gross domestic product (GDP) at 12.4%, twice that of Germany (5.6%, when a few months ago the forecast was 6.3%).

According to Brussels, Spain is the country in the Union that emerge from the pandemic worst. Catalonia, of course, will not remain unscathed. In fact, according to data published this Thursday by the Statistics Institute of Catalonia (Idescat) and the Department of the Vice Presidency and Economy, in the third quarter the Catalan GDP grew by 15.7% compared to the second quarter. This, however, is clearly insufficient to recover all that had been lost, which was a lot, in the first viral wave. Compared to the third quarter of last year, the Catalan economy has collapsed by 9.1% between June and September. This  year-on-year fall in the  Catalan GDP is greater than the Spanish fall (8.7%) and the  European Union  average which recorded a decline of 3.9%.

All these figures are disturbing. The tragedy is alarming. You only have to walk around cities and see the large number of closed businesses. It is not for nothing that the service sector, with special emphasis on the restaurant and hotel industries, is the most affected. But industry bears the brunt too: pessimism on the street is reflected on macroeconomic views. It is not only Brussels that paints a bleak picture for Spain (it has also reduced the growth forecast for 2021, which is no longer 7.9% but 5.4%), but also the Bank of Spain and the Independent Authority for Fiscal Responsibility (AIReF). Both institutions have appeared in Congress, where they have presented amends to Pedro Sánchez's budgets. While the Bank of Spain believes that it is not appropriate to provide for increases in the salaries of civil servants, AIReF cast doubt on the revenue forecasts contained in the accounts. Entrusting everything to the arrival of European aid does not seem very reasonable either. Europe will end up helping, yes, but as we have seen, it will do so with delay and with reservations, above all if we do not do our homework when it comes to presenting projects that are viable and highly valued in Brussels, and when it comes to justifying expenditure such as that questioned by the Bank of Spain.

It is true that, when facing the ravages caused by the crisis, social action cannot be left out: many families are running out of income. But support for economic sectors is also crucial. The lengthening of the furlough scheme is proving to be a key measure for the survival of many, but it is not enough. The more businesses manage to resist the second wave, the less difficult the general way out of the crisis will be. Right now, the outlook is very grim.

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