Spain’s economic recovery from COVID-19 will be slow

Subject

Spain's economic outlook.

Significance

The Spanish economy contracted by 5.2% quarter-on-quarter in January-March due to the lockdown to contain COVID-19. Given that the lockdown was only implemented in the last few weeks of the quarter, the contraction in the second quarter will be much greater. The economy's pre-pandemic vulnerability -- compounded by a staggered lifting of social restrictions and potential for their re-imposition -- and limited fiscal capacity means that a quick economic recovery is very unlikely.

Impacts

• Spain’s auto industry, the second-largest in Europe, will suffer disproportionately due to its reliance on multinational supply chains.
• The slump in consumer demand and sharply lower oil prices will trigger a decline in the inflation rate.
• Growing political opposition to Spain’s minority coalition could slow the government's reconstruction efforts.