May 1, 2020 / 8:39 AM / a month ago

UPDATE 2-Spanish GDP, pummelled by coronavirus pandemic, to contract 9.2% in 2020

(Adds details, quotes)

By Belén Carreño and Inti Landauro

MADRID, May 1 (Reuters) - Spain’s gross domestic product (GDP) will contract 9.2% in 2020, surpassing the fall during the country’s Great Recession of 2008-2013, Economy Minister Nadia Calvino said on Friday, as the coronavirus pandemic wrought havoc on the economy.

GDP is expected to recover in 2021 and expand 6.8%, Calvino said.

The economy minister said she expected an “asymmetric V-shape recovery, with the deepest decrease in the second quarter and then a strong and gradual recovery in the second half of the year”.

“Despite uncertainty, the government preferred to make forecasts more pessimistic and more prudent, which is more responsible when doing that kind of forecasts”, Calvino told a news conference.

Spanish government expectations are worse than IMF predictions but alligned with recent Bank of Spain projections for 2020.

Despite the pessimistic tone of the forescasts, Calvino anticipated a recovery in the employment market in April, specially in the construction and agricultural sectors.

In the last two weeks of March, almost 900,000 jobs were lost.

On Feb. 11, prior to the imposition of a nationwide lockdown to counter the pandemic, Calvino had forecast 2020 GDP growth at 1.6% in the previous budget draft sent to Brussels to meet the EU fiscal schedule. April 30 was the last day for EU members to send an updated version of that budgetary plan.

Spain’s current budget is an extension of the 2018 bill, approved by previous conservative leader, Mariano Rajoy. The political fragmentaion in Spain - which has seen four elections in four years - makes it extremely difficult to pass a new budget.

The government also revised the 2020 deficit forecast to 10.34% and a 2020 debt to GDP ratio at 115.5%. This compared to a deficit goal of 1.8% of GDP given in February.

“This is the widest deficit since 2012 when Spain reached 10.7%,” Budget Minister Maria Jesus Montero said during the same news conference.

Montero stressed his commitment to EU fiscal rules.

“This government is aware that after this shock it has to start a process of fiscal consolidation that will allow it to close the gap”.

Unemployment for 2020 was forecast to rise to 19%, easing to 17.2% in 2021. In the first quarter of 2020, the unemployment rate reached to 14.4%, but it did not still reflect the full hit in the labour market.

Until the pandemic hit, the Spanish economy - the euro zone’s fourth largest - had consistently outperformed much of Europe since it emerged from a five-year slump in 2013. During that crisis, the economy contracted 8.5%.

Spain has been growing for 24 quarters in a row - six years - but National Statistics Institute figures for 1Q published on Thursday already showed a record decrease of 5.2% quarterly. `

Spain has had one of the world’s worst coronavirus outbreaks with more than 24,800 fatalities and in mid-March imposed one of the strictest lockdowns. But officials are confident the worst has passed and started easing restrictions over the past few days and plans to further soften the lockdown gradually in May. (Reporting by Belen Carreno, Editing by Angus MacSwan and Inti Landauro)

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