Spain Economic Outlook. Second Quarter 2021

Summary

The Spanish economy contracted by 10.8% in 2020 and could grow by 5.5% in 2021 and 7.0% in 2022. In line with expectations, the economy recorded a slowdown, leading to stagnation during 4Q2 and could have contracted in 1Q21. Moving forward, a significant acceleration is expected, particularly in the second half of 2021.

Key points

• Key points:
• World economy will continue to recover despite the complex epidemiological situation. After having fallen by around 3.3% in 2020, World GDP will expand by 5,9% in 2021 and 4,8% in 2022, a better than expected evolution due to the acceleration of the vaccination program, the gradual lifting of restrictions on mobility and the additional stimulus measures.
• In Spain, GDP contracted by 10.8% in 2020. The economy slowed down significantly during 4T20, in line with BBVA Research forecast. The Spanish economy contracted again at the beginning of 2021 (-0.9% q/q) due to deteriorating health indicators in both Spain and the rest of EMU, Brexit, the impact of weather events and the increased cost of energy.
• Despite this uncertain start to the year, compared to the expectation of stagnation three months ago, economic activity is expected to accelerate over the next few quarters. This will keep GDP growth forecasts for the 2021–2022 period at 5.5 and 7.0%, respectively. The economy will improve, aided by several factors: the approval of strong fiscal stimulus in the US; the improvement of the health indicators; the high level of accumulated savings; the relaxation of the fiscal rules in the Eurozone, which will allow for further expansionary policies; the arrival of European funds; the effect of BCE policies; and the good performance of exports.
• The risks in this scenario remain vaccination progress, the consequences for employment and the production framework caused by the crisis, the implementation of NGEU-related projects and the political consensus required to agree on the reforms needed in Spain

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