Spain | The cyclical position of the Spanish economy in 2020

Summary

This Economic Watch assesses the factors that explain the cyclical behavior of the Spanish economy during the COVID-19 crisis. This is done using the data observed up to 3Q20 and the (2020) forecasts by BBVA Research for 4Q20, which are exogenous to the model.

Key points

• Key points:
• The fall in GDP per member of the working-age population (WAP) as a result of COVID-19 is without historical parallel. Between the last quarter of 2019 and the second quarter of 2020, this fall reached 25.3%, bringing it to levels not seen since the second half of 1997.
• During the first two quarters of the COVID-19 crisis—the period of lockdown measures that hit the Spanish population the hardest—supply factors accounted for almost 60% of the fall in GDP per member of the WAP, while demand factors accounted for just over 40%.
• In terms of supply factors, total factor productivity is behind the fall in output (with an average fall of 8.5 points during the first 3 quarters).
• Shocks in the tax rates on labor and capital income (primarily the former) also help to explain the year-on-year falls in GDP — they could be responsible for reducing growth by 0.7 pp in 2020.
• The credit and aggregate demand shocks include a significant positive contribution of bank credit, which during the first three quarters of the year contributed almost 2 pp to the change in GDP per member of the WAP.

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