Spain braces for impact of economic ‘hibernation’

A greengrocer sets up shop in a municipal market in Madrid on March 28. (AP pic)

MADRID: Spain, already struggling with high unemployment and debt, is bracing for the impact of the government’s decision to put the country’s economy into “hibernation” to fight the spread of coronavirus.

Grappling with Europe’s second-worst outbreak of the disease after Italy, the government on March 14 imposed a lockdown and on Sunday it went even further, banning all non-essential work for two weeks in the nation of around 47 million people.

The measure targeted especially the construction and manufacturing sectors, such as Airbus which was forced to stop production in Spain.

Speaking after the cabinet approved the decision to impose the work ban, Budget Minister Maria Jesus Montero said this economic “hibernation” was needed to fight the pandemic which has so far claimed 7,340 lives in Spain.

Spain’s main business lobby group, the CEOE, immediately warned of an “unprecedented impact on the Spanish economy”.

The eurozone’s fourth-largest economy was already largely at a standstill due to the lockdown, with production in Spain’s car plants already halted for example.

Spanish bank BBVA had already forecast the country’s economic output would drop by around 4% before this new measure, which should not lead to “big changes” in its economic outlook, said Nuno Fernandes, an economist at the IESE business school.

But in a country where nearly one in three workers was unemployed at the height of its economic crisis in 2013, and still had the eurozone’s second-highest unemployment rate – 14% – after Greece, anxiety is mounting.

Half of all Spaniards fear losing their job because of the outbreak, according to a recent survey published in the daily El Pais.

Job loss fears

Prime Minister Pedro Sanchez’s leftist government on Friday banned job dismissals during the pandemic, a step demanded by unions which warned that up to one million people risked losing their jobs.

“If there are not revenues but there are expenses and we can’t fire … the only option left is to close,” the head of the country’s main business group, Antonio Garamedi, said Monday during a radio interview.

The government had pledged up to €100 billion for loan guarantees to businesses to cushion the economy from the damage caused by the pandemic.

But the business lobby group predicts 300,000 jobs could be lost if the crisis lasts over a month, especially in hotels, travel agencies and the textile sector.

“Spain is a country where, if economic activity stops, more jobs are destroyed than in other countries,” said Pedro Aznar of the ESADE business school.

This is because nearly 30% of all workers have temporary contracts, the highest rate in Europe, especially in the key tourism sector, and a 2012 labour market reform made it easier and less expensive to fire workers, he added.

‘Fewer resources’

The tourism sector, which accounts for around 12% of Spain’s GDP, has been especially hard hit by the pandemic.

The UN World Tourism Organization predicted Friday that international travel will likely fall by 20 to 30% this year due to the disease.

The global recession which the virus will spark will also hit car sales, more bad news for Spain, Europe’s second-biggest car producer after Germany.

With companies stopping their activity, “tax revenues will be very bad and the government will have fewer resources while it will have more expenses,” Aznar said.

He said this explains why Sanchez “insists so much” on a proposal made by Spain and eight other European Union member states that the bloc borrow money to finance the fight against coronavirus by issuing joint “coronabonds”, he added.

Germany and the Netherlands have opposed the idea.

Spain has much less margin to manoeuvre now than it did when the global financial crisis struck in 2008.

The country’s public debt currently stands at over 95% of its economic output, compared with less than 37% in 2007.