Spain | Regional Analysis. First quarter 2021

A smaller contraction in GDP is expected in 2020 (-11%), due to upward surprises in all components of demand, especially domestic demand. The improvement in foreign tourism in the second part of 2021 will allow for further growth in the island communities. In 2022, the boost from European funds will favor the economy.

Key points

• Key points:
• In 2020, the forecast for a contraction in activity is further corrected in the Balearic Islands (+2.5 pp), in the Canary Islands (+1.0 pp), in the Valencian Community (+0.9 pp), in Catalonia (+0, 8 pp), in Galicia (+0.7 pp), benefited by the advance of both internal and external demand.
• Generalized downward revision in 2021 growth. Recent deterioration in health indicators and new social distancing measures in Spain and Europe, exhaustion of demand policies and increased uncertainty in Spain slow consumption and exports of goods.
• Private consumption will grow, but at a slower pace than expected a few months ago, and the spring tourist season is lost. This reduces the forecasts for Andalusia (to 5.4%) or Madrid (to 4.7%) to a greater extent.
• In 2022, the Balearic Islands (+11.0%) and the Canary Islands (+9.6%) will once again lead economic growth, driven by a certain return to normality in tourism and starting from lower levels. The economy will accelerate, boosted by European funds. The Basque Country (+7.5%), Navarre (+7.3%), Madrid (7.4%) and Catalonia (7.2%) will benefit the most from the boost to investment.
• Risks. In the short term, pandemic control and the speed of the vaccination process are priorities and put a downward bias on forecasts. Efficient use of NGEU funds and consensus on reforms that increase the potential growth of the economy are key.

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