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GDP impact analysis of COVID-19 in Spain

[5 minute reading]

On April 3, 2020, ZZ Data Labs predicted a fall in Spain’s GDP of between 5% and 12% over the next two years.

We present a study that shows how in Spain the GDP could fall by up to 27% at the most critical moment of this outbreak. The economy would lose between 9.5% and 22% this year and would recover during 2021 and 2022

The study has analysed the main sectors of the Spanish economy: tourism, construction, health, commerce, financial services, agriculture, automotive, banking and mining. In all sectors there is a certain drop, which is entirely due to the effects of the SARS-CoV-2 (coronavirus) outbreak in which we find ourselves. The drop is specifically attributed to containment measures taken to curb the number of cases of COVID-19.

The study aims to answer with its results a series of questions that are being repeated in Spanish households and companies:

  • What will be the real impact of this crisis? How much will we fall and for how long?
  • Which sectors will be most and least affected?
  • When will we start to recover?
  • How long will it take us to recover? When will we return to the point before COVID-19?
  • What would happen to our economy if there were a future upswing in cases?

What will be the real impact of this crisis?

We have developed a multitude of scenarios by sector and autonomous community, as well as the corresponding aggregates. In this article we present three of them: one more favourable (green curve), one medium (blue curve) and one more unfavourable (orange curve).

The scenarios depend on how long the total confinement adopted by the Government of Spain lasts and how it is exited, presumably gradually until a return to normality is achieved.

The prediction is based on a previous study on the evolution and effects of the COVID-19 in Spain using Artificial Intelligence, also carried out by ZZ Data Labs.

In the worst case scenario, the Spanish economy would fall 27% between July and August, recovering to fall 22% by the end of the year and 12% by 2021. In the medium scenario, GDP would fall by 22% between June and July, 14% at the end of 2020 and 8% in 2021. Finally, in the most favourable scenario, GDP would be affected by 18% between May and June, recovering to 9.5% at the end of the year and 5% in 2021. Throughout 2022, the economic level prior to the current outbreak would recover.

Which sectors will be most and least affected? How much will we fall and for how long?

The most affected sector will be tourism, with falls of up to 50% in the most favorable scenario and 70% in the most unfavorable. It will be followed by the automotive and industrial sectors with falls of between 20% and 40% and commerce, between 20% and 35%.

The study predicts that the least affected sectors will be health, with falls of less than 3%, agriculture, with falls of less than 5%, and construction, although the latter will fall by between 7% and 15%.

When are we going to start going back up?

In the medium scenario, after the 22% drop in GDP, a period of high growth begins, caused by the population coming out of confinement and the willingness of the population to return to work and encourage consumption. In this scenario, total confinement would last two or three weeks and would gradually be lifted over two months. By mid-June, recovery would begin, with shops fully open.

How long will it take us to recover? When will we return to the point before COVID-19?

According to ZZ Data Labs’ models, although the initial recovery will be strong, the trend will stabilize throughout the third and fourth quarters. This will mean that, in the most favourable case, by the end of 2020 the fall will have gone from 18% to 9.5%, in the average case from 22% to 14%, and in the most unfavourable case from 27% to 22%.

During 2021, the economy is expected to function at the pace it did before the outbreak, so the recovery will be complete. However, given the erosion of GDP in the second and third quarters of 2020, the level expected in 2019 will not be recovered in 2021. It will be in 2022 when Spanish GDP will be at these levels again.

What would happen to our economy if there were a future surge of cases?

Other scenarios in the study conducted by ZZ Data Labs envisage a second outbreak in September and further minority ones in 2021. In the latter cases, if a vaccine is developed and strategies for virus containment are in place, confinement of the population would not be necessary, so the impact on GDP would be much less than in the first outbreak.

The case is different when an outbreak occurs during the fourth quarter of 2020, which would force a new confinement and the main sectors that contribute significantly to Spanish GDP would be affected again, with the curve taking the form of a double negative peak: a first recovery at the end of the first outbreak and a second depression at the beginning of the second, even more pronounced than the first.

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