new macroeconomic projections for spain 2020-2022 · 2020. 9. 22. · spain 2020-2022 Óscar arce...
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DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
MACROECONOMIC PROJECTIONS FOR SPAIN 2020-2022
ÓSCAR ARCE
Director General Economics, Statistics and Research
Madrid
16 September 2020
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
2USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
3USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
Very sharp decline in activity in Q2 as a consequence of the impact of the health crisisand the containment measures.
Gradual recovery in Q3, with a loss of strength towards the end of the quarter.
Two scenarios are considered for activity developments:
1) Different assumptions regarding epidemiological developments
2) Marked fall in GDP in 2020 and subsequent recovery, with a high level of uncertainty
3) The return of activity to its normal level will be incomplete; at the end of 2022, activity will bebelow its pre-pandemic level.
The risks are on the downside in the coming quarters, linked to epidemiologicaldevelopments and the availability of an effective treatment and, also, to other risksstemming from the external environment.
Overall inflation has an upward profile until the beginning of 2021, and subsequentlystabilises, strongly influenced by the behaviour of energy, while core inflation risesvery moderately over the whole of the horizon.
4
VERY SEVERE CONTRACTION IN ECONOMIC ACTIVITY AS A CONSEQUENCE OF COVID-19
USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
ÍNDICE
5USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
• The availability of an effective medical solution from the second half of 2021 would allow any
containment measures in place at that time, the impact of which would be particularly
notable in the “social industries”, to be lifted.
• Despite the projected recovery, at the end of 2022, under both scenarios, the level of GDP
would be lower than before the pandemic.
• In both scenarios, the degree of uncertainty surrounding the development of the pandemic
and its impact on business and household incomes will continue to weigh on the spending
decisions of these agents in the coming quarters.
6
ALTERNATIVE SCENARIOS (I): COMMON ELEMENTS
USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
SCENARIO 1:
• Similar epidemiological assumptions to those of the gradual recovery scenario of June:
emergence of fresh outbreaks, although only requiring containment measures of limited
scope, both from a geographical standpoint and in terms of the sectors affected, and
therefore causing relatively limited additional disruption to economic activity.
• The consequences of the containment measures are expected to directly affect sectors
linked to accommodation and food service activities and leisure (and, on the demand side,
tourism) and indirectly influence other productive sectors through spillover effects.
SCENARIO 2:
• More intense outbreaks and the return of more stringent confinement measures, particularly
affecting those services sectors where social interaction is a key element, and likewise
directly affecting other productive sectors.
• The result is a sharper and longer-lasting contractionary impact on activity.
• The availability of an effective medical solution would lead to an improvement in activity,
more markedly so under scenario 2, in keeping with the greater intensity of the outbreaks of
the pandemic until that time.
7
ALTERNATIVE SCENARIOS (II): DISTINGUISHING ELEMENTS
USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
8USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 9
MARKED DECLINE IN ACTIVITY IN Q2
GDP fell 18.5% quarter-on-quarter in Q2, the sharpest decline in the available time series since
1970.
This decline stands mid-range between “early recovery” and “gradual recovery”, the two scenarios
published in June.
The drop in activity was more marked than in the majority of European countries.
Sources: Banco de España (Q2 projection of the June Quarterly Report), INE (Quarterly National Accounts for Q1 and Q2), ECB and Office for National Statistics.
-18.5
-16.1
-2.3
-21.8
-18.8
-2.9
-16.0
-24
-18
-12
-6
0
GDP Domestic demand Net external demand
QNA
JUNE PROJECTION: GRADUAL RECOVERY
JUNE PROJECTION: EARLY RECOVERY
QUARTER-ON-QUARTER GDP GROWTH (%) AND CONTRIBUTIONS (pp)
-2.0%
-3.7%
-5.5% -5.9%-5.2%
-2.2%
-9.7%
-11.8%-12.8%
-13.8%
-18.5%
-20.4%
-25%
-20%
-15%
-10%
-5%
0%2020 Q1 2020 Q2
GDP GROWTH. QUARTER-ON-QUARTER RATES
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
THE CONJUNCTURAL INDICATORS APPEAR TO SHOW AN INTERRUPTION IN AUGUST TO THE GRADUAL RECOVERY PATH THAT BEGAN IN MAY
10
Sources: ANFAC, INE, IHS Markit and European Commission. Latest observation: August (registrations, purchasing managers’ and confidence indices) and July (retail trade index).
-40
-30
-20
-10
0
10
15 16 17 18 19 20
RETAIL TRADE INDEX
Y-o-y rate of change, %
-100
-75
-50
-25
0
25
50
15 16 17 18 19 20
PRIVATE VEHICLE REGISTRATIONS
Y-o-y rate of change, %
-4
-3
-2
-1
0
1
2
2017 2018 2019 2020
ECONOMIC SENTIMENT INDICATOR INDUSTRY SERVICES
CONFIDENCE INDICATORS (standardised)
0
10
20
30
40
50
60
70
2017 2018 2019 2020
COMPOSITE PMI MANUFACTURING PMI SERVICES PMI
PURCHASING MANAGERS' INDICES
points
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 11
SLOWDOWN IN THE ACTIVITY IMPROVEMENT DURING THE SUMMER MONTHS
The recovery path followed by high-frequency indicators slowed during the summer
months, broadly remaining below pre-crisis levels.
Sources: Sources: Google and Atlantia Group. Latest data: 6 September (mobility) and 30 August (motorway traffic).a. Each grey line represents a different country).
USO INTERNO
-90
-75
-60
-45
-30
-15
0
15
6-Ja
n/1
2-Ja
n
27-Ja
n/2
-Feb
17-F
eb
/23
-Feb
9-M
ar/1
5-M
ar
30-M
ar/5
-Ap
r
20-A
pr/2
6-A
pr
11-M
ay/1
7-M
ay
1-Ju
n/7
-Jun
22-Ju
n/2
8-Ju
n
13-Ju
l/19
-Jul
3-A
ug
/9-A
ug
24-A
ug/3
0-A
ug
SPAIN FRANCE ITALY
MOTORWAY TRAFFIC
Year-on-year rate of change with respect to equivalent week, %
-100
-80
-60
-40
-20
0
20
40
22 F
eb
29 F
eb
07 M
ar
14 M
ar
21 M
ar
28 M
ar
04 A
pr
11 A
pr
18 A
pr
25 A
pr
02 M
ay
09 M
ay
16 M
ay
23 M
ay
30 M
ay
06 Ju
n1
3 Ju
n2
0 Ju
n2
7 Ju
n0
4 Ju
l1
1 Ju
l1
8 Ju
l2
5 Ju
l0
1 A
ug
08 A
ug
15 A
ug
22 A
ug
29 A
ug
05 S
ep
%
LOCAL MOBILITY INDICATORS (a). RETAIL AND RECREATION OUTLETS, PUBLIC TRANSPORT STATIONS AND WORKPLACES (7-day moving average)
-100-100 2…
2…
7…
1…
2…
2…
4…
1…
1…
2…
2…
9…
1…
%%FRANCE GERMANY HONG KONG
ITALY SOUTH KOREA NETHERLANDS
SPAIN UNITED STATES
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 12
GRADUAL AND INCOMPLETE RECOVERY IN SOCIAL SECURITY REGISTRATIONS
Social Security registrations have recovered in recent months, with the August
average standing 2.8% below the level recorded a year previously (-4.8% in May).
In year-on-year terms, the increase was more marked in July and the first half of
August, with indications of the recovery losing momentum since then.
Source: Ministerio de Inclusión, Seguridad Social y Migraciones. Latest data: 31 August.
USO INTERNO
-6
-4
-2
0
2
4
01 Mar 01 Apr 03 May 03 Jun 02 Jul 31 Jul 31 Aug
DAILY REGISTRATIONS
YEAR-ON-YEAR RATE OF CHANGE IN DAILY SOCIAL SECURITY REGISTRATIONS
%
17,800
18,000
18,200
18,400
18,600
18,800
19,000
19,200
19,400
19,600
01 Mar 01 Apr 03 May 03 Jun 02 Jul 31 Jul 31 Aug
DAILY REGISTRATIONS MONTHLY AVERAGE
DAILY SOCIAL SECURITY REGISTRATIONS FROM BEGINNING OF MARCH
Thousands of people
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 13
THE NUMBER OF WORKERS ON FURLOUGH HAS DECLINED SHARPLY, ALLOWING A NOTABLE RECOVERY IN ACTUAL SOC. SEC. REGISTRATIONS
The number of workers on furlough has fallen by more than 70% from the highs recorded in April,
reaching just over 800,000 at the end of August. This reduction has allowed actual registrations to
recover to a year-on-year decline of -7.4% from the lows of -20.9% in May.
The recovery is quite uneven by sector of activity: some services sectors, such as accommodation
and food service activities (-29%), remain well below the employment levels of a year ago.
Source: Ministerio de Inclusión, Seguridad Social y Migraciones. a) Actual Social Security registrations: total registrations less workers on furlough
USO INTERNO
-25
-20
-15
-10
-5
0
5
01 Ja
n
01 F
eb
01 M
ar
01 A
pr
01 M
ay
01 Ju
n
01 Ju
l
01 A
ug
TOTAL SOCIAL SECURITY REGISTRATIONS
ACTUAL SOCIAL SECURITY REGISTRATIONS (a)
TOTAL AND ACTUAL SOCIAL SECURITY REGISTRATIONS. MONTHLY AVERAGE DATA
% y-o-y
-75 -60 -45 -30 -15 0
Accomm. & food service activitiesArts and recreation
Administrative activitiesExtraterritorial organisations
Other services activitiesTransport
Real estate activitiesTrade
ManufacturingMining and quarrying
Prof., scientific and technical activitiesInformation and communication
EnergyDomestic help
EducationFinancial activities
ConstructionWater supply
Public administrationAgriculture
Health
Total
MAY 2020 AUGUST 2020
YEAR-ON-YEAR RATE OF CHANGE IN ACTUAL SOCIAL SECURITY REGISTRATIONS BY SECTOR OF ACTIVITY
%
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA N
THE DOWNTURN IN THE TOURISM SECTOR PLACES CONSTRAINTS ON THE PERFORMANCE OF GDP IN Q3
The calibration of the decline in GDP this quarter compared with 2019 Q3 takes into
account above all the restrictions on activities related to tourism and recreation which
have curtailed their recovery since August.
Possible spillovers to the other sectors of activity are also taken into account (see
Prades and Tello, 2020).
Sources: Banco de España and INE.
USO INTERNO
-9.5 %
-12.3 %
-15
-13
-11
-9
-7
-5
-3
-1
SCENARIO 1 SCENARIO 2
PRIMARY SECTOR INDUSTRIAL SECTOR
CONSTRUCTION RETAIL AND WHOLESALE TRADE
TRANSPORT TOURISM
OTHER SERVICES PUBLIC ADMINISTRATION, EDUCATION AND HEALTH
Y-O-Y FALL IN GDP IN Q3: CONTRIBUTIONS BY SECTORS (PP)
pp
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 15
SPAIN IS HIGHLY EXPOSED TO INBOUND TOURISM
The Spanish economy is highly sensitive to inbound tourism. The relative weight of
tourism exports is higher than in the main euro area economies.
Sources: OECD and Eurostat.
0
1
2
3
4
5
6
7
8
9
ES PT FR GR AT IT FI BE DE IE
WEIGHT OF TOURISM EXPORTS IN GDP (2018)
%
0
5
10
15
20
25
ES PT FR GR AT IT FI BE DE IE
WEIGHT OF TOURISM IN EXPORTS (2018)
%
USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 16
FRESH OUTBREAKS OF THE PANDEMIC IN SPAIN HAVE DISRUPTED THE RECOVERY OF INBOUND TOURISM
The worsening of the health crisis has led the main countries that provide tourists to
impose new restrictions on travel to Spain.
This has curtailed the incipient recovery of inbound tourism observed at end-June
and in early July.
Sources: Eurocontrol, INE and Banco de España
USO INTERNO
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
07/0
3/2
01
4/0
3/2
02
1/0
3/2
02
8/0
3/2
00
4/0
4/2
01
1/0
4/2
01
8/0
4/2
02
5/0
4/2
00
2/0
5/2
00
9/0
5/2
01
6/0
5/2
02
3/0
5/2
03
0/0
5/2
00
6/0
6/2
01
3/0
6/2
02
0/0
6/2
02
7/0
6/2
00
4/0
7/2
01
1/0
7/2
01
8/0
7/2
02
5/0
7/2
00
1/0
8/2
00
8/0
8/2
01
5/0
8/2
02
2/0
8/2
02
9/0
8/2
00
5/0
9/2
0
AIR TRAFFIC IN SPANISH AIRPORTS
SPENDING WITH FOREIGN CREDIT CARDS
RECENT DEVELOPMENTS IN SPENDING WITH FOREIGN CREDIT CARDS AND AIR TRAFFIC
Y-o-y rate of change (seven-day moving average)
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
TOTAL UNITEDKINGDOM
GERMANY FRANCE ITALY
Tourist arrivals Tourist spending Overnight hotel stays
SPAIN: INBOUND TOURISM INDICATORS BY MAIN SOURCE MARKETS
Y-o-y rates in July 2020
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
17USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 18
SLUMP IN ACTIVITY IN 2020 AND SUBSEQUENT RECOVERY
2019 2020 2021 2022 2020 2021 2022 2020 2021 2022
GDP 2.0 -10.5 7.3 1.9 -12.6 4.1 3.3 -11.6 9.1 2.1
Harmonised index of consumer prices (HICP) 0.8 -0.2 1.0 1.2 -0.3 0.8 1.1 -0.2 1.2 1.5
Harmonised index of consumer prices excluding
energy and food1.1 0.7 0.8 1.0 0.6 0.5 0.8 0.8 1.0 1.1
Unemployment rate (% of labour force). Annual
average14.1 17.1 19.4 18.2 18.6 22.1 20.2 19.6 18.8 17.4
General government net lending (+) /net borrowing (-)
(% of GDP)-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2 -11.2 -6.8 -6.1
General government debt (% of GDP) 95.5 116.8 115.4 118.0 120.6 125.6 128.7 119.3 115.9 118.7
SCENARIO 1 SCENARIO 2 GRADUAL RECOVERY
SEPTEMBER 2020 PROJECTIONSJUNE 2020
PROJECTIONSAnnual rate of change (%), unless otherwise indicated
Sources: Banco de España and INE. Projections cut-off date: 10 September 2020.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 19
REAL GDP AT END-2022 WOULD BE BELOW THE DECEMBER 2019 LEVEL UNDER BOTH SCENARIOS
Pick-up in activity in 2020 Q3.
Sources: Banco de España and INE
70
75
80
85
90
95
100
105
110
2019 Q4 2020 Q4 2021 Q4 2022 Q4
DECEMBER 2019 PROJECTIONS
SCENARIO 1
SCENARIO 2
GROSS DOMESTIC PRODUCT(Chained volume index)
2019 Q4 = 100
SCENARIO 1 SCENARIO 2
-5.2 %
-18.5 %
16.6 %
13.0 %
-25
-20
-15
-10
-5
0
5
10
15
20
25
Q1 Q2 Q3
GDP IN 2020(Q-o-q rate of change, %)
%
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 20
FINAL DEMAND WILL RECORD A STEEP DROP IN 2020
… and recover in 2021, underpinned mainly by growth of domestic demand.
Sources: Banco de España and INE.
-20
-16
-12
-8
-4
0
4
8
12
Scenario 1
Scenario 2
Scenario 1
Scenario 2
Scenario 1
Scenario 2
2018 2019 2020 2021 2022
CONSUMPTION INVESTMENT EXPORTS IMPORTS GROSS DOMESTIC PRODUCT
Projections
GDP GROWTH (%) AND CONTRIBUTIONS (pp)
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 21
EMPLOYMENT WILL FOLLOW A SIMILAR TREND TO THAT OF GDP
Employment, in terms of hours worked, will follow a very similar trend to that of
economic activity, declining by more than 10% in 2020 and recovering thereafter.
The increase in unemployment will be contained by the use of furlough schemes and
greater inactivity in 2020 Q2, although the unemployment rate is expected to rise to
between 17% and 18% this year.
Sources: Banco de España and INE.
-15
-12
-9
-6
-3
0
3
6
9
12
Scenario1
Scenario2
Scenario1
Scenario2
Scenario1
Scenario2
2018 2019 2020 2021 2022
HOURS WORKED PRODUCTIVITY PER HOUR GROSS DOMESTIC PRODUCT
GDP GROWTH (%) AND CONTRIBUTIONS (PP)
Projections
INTERNAL USE
12
14
16
18
20
22
24
16 17 18 19 20 21 22
OBSERVED Scenario 1 Scenario 2
UNEMPLOYMENT RATE(% of labour force)
%Projections
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 22
PUBLIC FINANCES: CHANGES IN GENERAL GOVERNMENT DEBT AND DEFICIT
New spending measures are included (extension of furlough schemes until September,minimum living income, fund for regional governments), which worsen the deficit in2020-2022. The Next Generation EU programme is not included given the uncertaintyover its amount, structure and timing for Spain.
The deficit is expected to stand between -10.8% and -12.1% of GDP in 2020,subsequently decreasing in the following years.
Debt rises significantly in 2020 and, to a lesser extent, in 2021-2022.
Scenario 1 Scenario 2
As a % of GDP 2019 2020 2021 2022 2020 2021 2022
General government balance
-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2
General government debt
95.5 116.8 115.4 118.0 120.6 125.6 128.7
Source: Banco de España.
INTERNAL USE
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 23
INFLATION WILL RISE AND THEN LEVEL OFF, HIGHLY INFLUENCED BY CHANGES IN ENERGY
Sources: Banco de España and INE.
The overall inflation rate is expected to be negative in H2, gradually increasing and
levelling off around 1.1%-1.2% until end-2022:
progressively larger contribution from energy prices.
gradual increase in core inflation.
INTERNAL USE
-2
-1
0
1
2
3
-2
-1
0
1
2
3
2018 2019 2020 2021 2022
CORE INFLATION ENERGY FOOD ACTUAL HICP AND SCENARIO 1 SCENARIO 2
OVERALL INFLATION (%) AND CONTRIBUTIONS (PP)
Projections
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 24
COMPARISON WITH JUNE FORECASTS FOR 2020
Sources: Banco de España and INE.
INTERNAL USE
-30
-25
-20
-15
-10
-5
0
2020 Q1 2020 Q2 2020 Q3 2020 Q4
Scenario 1 (September) Early recovery scenario (June) Scenario 2 (September) Gradual recovery scenario (June)
REAL GDP. COMPARISON OF THE CURRENT SCENARIOS FOR 2020 WITH THE JUNE SCENARIOS
% y-o-y
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
25USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 26
RISKS SURROUNDING THE FORECASTS
Activity
(-) As regards the course of the pandemic:
• Possibility of more intense outbreaks over the coming quarters, entailing stringent lockdown
measures, with a larger impact on “social industries”.
• Possible delay in the discovery and/or distribution of an effective solution, which will have a
bearing on the path of recovery in the medium term.
(-) More protracted effects on productive capacity (higher levels of business insolvency and hysteresis
effects in the labour market).
(-) Possible lack of agreement in Brexit negotiations; China-US geopolitical/trade tensions.
(+) The launch of the EC’s recovery plan (“Next Generation EU”) approved on 27 July, above all in the
second half of the projection horizon.
Prices
(-) Materialisation of downside risks to activity.
(-) Deanchoring of inflation expectations
(+) Cost increases associated with the possible introduction of hygiene and sanitary measures in
some productive processes.
INTERNAL USE
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
CONTENTS
27USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 28
MACRO IMPACT OF NEXT GENERATION EU PROGRAMME (I)
In July the European Council resolved to create the Next Generation EU (NGEU) fund
to address the impact of the COVID-19 crisis and speed up the digital and ecological
transition.
Government estimates indicate that Spain would be eligible for funds of €140 bn
(12.6% of GDP), 47% in direct grants and the remainder in loans.
These funds are not included in the projections, as there is still great uncertainty as
to the amount and composition of the funds and the time frame.
Instead, their potential macroeconomic impact has been calculated in accordance with
different assumptions on the specifics of the programme for Spain:
the time frame for the projects (early or late implementation);
the grants / loans split; and
the type of projects to be funded (investment or other expenditure).
The uncertainty in the empirical evidence on the scale of the fiscal multiplier has also been
considered using a range of values (investment 0.8-1.3, other expenditure 0.4-0.7).
USO INTERNO
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 29
MACRO IMPACT OF NEXT GENERATION EU PROGRAMME (II)
Four simulation exercises have been performed using the MTBE model for a
cumulative standardised stimulus of €10 bn (0.9% of GDP):
A combination of assumptions most conducive to economic growth – exercise 1 – boosts GDP
by 0.2-0.3 pp on average in 2021-23.
Late implementation – exercise 2 – would delay the maximum impulse and the expansionary
effect on 2021-23 would be more moderate.
If the funds are received via loans – exercise 3 – the additional cost would drive up the deficit and
debt and thus limit the increase in GDP.
Lastly, if the funds were applied to other expenditure – exercise 4 – which according to the
empirical evidence generates a smaller multiplier effect, the impact on GDP would be lower.
In short, the impact of the NGEU programme on recovery will depend on the correct
choice and implementation of the projects to be funded and on their capacity to
strengthen long-term growth.
USO INTERNO
GDP Public debt (% of GDP)
2021 2022 2021 2022
Exercise 1: “early implementation” + “grants” + “public investment” 0.19 − 0.3 0.21 − 0.35 -0.22 − -0.35 -0.35 − -0.57
Exercise 2: “late implementation” + “grants” + “public investment” 0.02 − 0.04 0.08 − 0.13 -0.03 − -0.05 -0.1 − -0.18
Exercise 3: “early implementation” + “loans” + “public investment” 0.14 − 0.27 0.15 − 0.29 -0.1 − -0.2 -0.09 − -0.18
Exercise 4: “early implementation” + “grants” + “current expenditure” 0.06 − 0.09 0.12 − 0.19 -0.07 − -0.11 -0.18 − -0.29
Effects on GDP and public debt of the Next Generation EU programme under alternative assumptions (a)
Percentage differences in level
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
THANK YOU FOR YOUR ATTENTION
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
APPENDIX
31
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 32
FINANCIAL AND INTERNATIONAL SETTING ASSUMPTIONS
2019 2020 2021 2022
International environment
Global output 2.8 -4.2 6.1 3.7
Spain's export markets 1.5 -13.1 7.3 4.3
Oil price ($ per barrel) (level) 64.0 42.1 45.9 48.5
Monetary and financial conditions
Dollar/euro exchange rate (level) 1.12 1.14 1.19 1.19
Nominal effective exchange rate
vis-à-vis non-euro area countries
(2000 level = 100)
116.4 117.7 121.4 121.4
Short-term interest rates
(3-month euribor) -0.4 -0.4 -0.5 -0.5
Long-term interest rate
(10-year bond yield)0.7 0.4 0.4 0.6
September 2020 projectionsAnnual rates of change, unless otherwise indicated
PROJECTION ASSUMPTIONS
SOURCES: Banco de España and ECB. Cut-off date for the assumptions: 10 September 2020.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 33
PROJECTIONS 2020-2022
SOURCES: Banco de España and the INE. Latest published QNA data: 2020 Q2.
a. Projections cut-off date: 10 September 2020.b. Annual average.
2019 2020 2021 2022 2020 2021 2022
GDP 2.0 -10.5 7.3 1.9 -12.6 4.1 3.3
Private consumption 1.1 -11.2 9.4 1.7 -13.1 5.5 3.2
Government consumption 2.3 5.4 -1.3 -0.1 5.6 -1.2 -0.5
Gross fixed capital formation 1.8 -19.5 6.0 5.3 -21.9 2.4 6.5
Exports of goods and services 2.6 -20.7 11.5 6.2 -25.2 7.4 8.0
Imports of goods and services 1.2 -18.7 8.4 6.6 -22.0 4.9 7.3
Domestic demand (contribution to growth) 1.5 -9.3 6.2 1.8 -10.9 3.3 2.9
Net external demand (contribution to growth) 0.5 -1.2 1.1 0.1 -1.7 0.8 0.4
Harmonised index of consumer prices (HICP) 0.8 -0.2 1.0 1.2 -0.3 0.8 1.1
HICP excluding energy and food 1.1 0.7 0.8 1.0 0.6 0.5 0.8
Employment (hours worked) 1.5 -11.9 7.0 1.6 -14.1 3.8 2.7
Unemployment rate (% of labour force) (b) 14.1 17.1 19.4 18.2 18.6 22.1 20.2
National net lending (+)/net borrowing (-) (% of GDP) 2.3 1.7 2.1 2.1 1.1 1.3 1.5
General government net lending (+)/net borrowing (-) (% of
GDP)-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2
General government debt (% of GDP) 95.5 116.8 115.4 118.0 120.6 125.6 128.7
Scenario 1 Scenario 2
September 2020 projections (a)
Annual rate of change in volume terms and as % of GDP