Spain | Factors explaining the economic cycle a year on from the Great Lockdown

This Economic Watch updates the analysis of the factors determining the economic cycle in Spain, with the information available up to the second quarter of 2021, including the major revision of GDP and its components carried out by INE in september.

Key points

• Key points:
• We provide an estimate of the main structural shocks that have affected the growth of GDP per working-age person (WAP), the GDP deflator and real wages.
• We focus on the second quarter of 2021, because, as the variables are measured in terms of annual growth rates, it includes the effect of all quarterly growth rates since the Great Lockdown.
• After the strong recovery in GDP per WAP observed at the end of the Great Lockdown, in the third quarter of 2020, the rate of recovery has not increased in subsequent periods and—in the last three quarters—the gap with the potential growth trend has scarcely been reduced.
• Supply-side factors explain 90% of the negative annual growth rates for GDP per WAP in the second half of 2020, leaving little room (just 10%) for demand-side factors. This trend continued into the first quarter of 2021.
• The positive yoy growth rate of 15% in GDP per WAP in 2Q2021 results 75% from demand factors and only 25% from those of supply. The positive contribution of supply-side factors in the second quarter of 2021 is due, in particular, to the major increase in total factor productivity (TFP).

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