COVID Returns with a Vengeance
Spain is clearly at the forefront of COVID in Europe, with new cases (per 100,000) running at 221 on a two-week moving average basis, the highest so far of the pandemic and up over threefold from just a month ago. Admittedly, the current situation in Spain is also different to earlier in the pandemic, with many more people having been tested, and (more crucially) where most positive outcomes have proved to be asymptomatic and/or not requiring hospitalization. Indeed, figures for the latter are currently running at less than 5%, half that in July and down sharply from over 46% in April.
In addition, and as the WHO underscores, Spain’s COVID also differs from most of Europe; it is regionalized, or as it terms it “clustered.” This also reflects the manner in which the current flare-up has been triggered, i.e. by repeated disregard for key aspects of lockdowns, even during easing, occurring especially in cities and tourist hotspots rather than nationwide.
Political Divides Growing
The official response has been mixed as political divisions between local authorities and the minority government have intensified as each tries to play the blame-game. During the early days of the pandemic, PM Pedro Sánchez’s Socialist-led and minority administration used emergency powers to instigate lockdowns, This often necessitated the overriding of regional governments and suffering high political costs as regional nationalists and opposition politicians tried to resist Madrid’s control.
This time round, the PM has stressed that more of the burden should fall on Spain’s regions to manage the pandemic, fueling the existing animosity between the national government and the likes of the Popular Party, which controls Madrid. This will hardly result in coherent policy decisions to address the fresh COVID flare-up.
Lockdown Fatigue Accentuated
Lockdown fatigue is not unique to Spain. However, it is being accentuated in Spain due to its atypical residential lifestyle. Specifically, at 66%, Spain has one of the highest percentages of residents living in flats in Europe, second only to Latvia. In Italy, by comparison, the proportion is around half, and in France it’s just over 40%. Given that the flats are usually small, Spaniards traditionally cope by spending relatively more time outside, taking advantage of traditional balmy weather to meet in town squares, parks, and bars and restaurants. One result is that, compared to others, Spanish consumers spend significantly more time and money eating out: 15% of household consumption is spent in restaurants or bars, compared to the EU average of 9%.
Recovery Hopes Hit
All of which means that should lockdowns be reinforced more successfully, there will be further economic fallout beyond that already evident in terms of international tourism, as many countries are now quarantining any travelers returning from Spain, causing many people to cancel trips. As tourism accounts for 12% of Spain’s GDP and 13% of jobs, the sector’s plight is crucial for the economy and the recent data are very damning.
As Figure 1 highlights, while there has been some recovery from zero foreign tourists in the spring, according to government figures just 2.5 million international visitors arrived during July, 25% of that a year ago. Tourism spending has also suffered a circa-18% y/y fall. The figures underscore that hopes of reviving the summer season have already fallen far short of both limited expectations and the norm, with data for the rest of the summer likely to be equally gloomy.
A Deeper 2020 Recession
Real-time data does suggest some stalling in activity, but with survey data still consistent with an ongoing recovery, albeit from the depth of the 18.5% Q2 GDP slump, a result that was slightly more downbeat than we projected. Even so, we now envisage that the current quarter will see only around half that drop repaired, resulting in the full-year GDP drop being revised down over half a ppt, to -13.3%. However, we now adhere to an 8.4% bounce next year, but where that will still leave the level of GDP at end-2021 about 5% below its recent peak and where Spain’s tourist industry may still be in a state of severe flux.