Published on Wednesday, July 22, 2020

Spain | Hopes for better and more inclusive growth in Spain and in Andalusia

Confinement measures and temporary restrictions on activity due to COVID-19 have sent Andalusia and Spain into a deep recession. Not only will the recovery require new public support measures, it will require commitment to reforms to increase their impact. The vulnerabilities of the Spanish economy must be addressed.

Key points

  • Key points:
  • Policy decisions have eased some of the negative economic effects of COVID-19. At domestic level, ICO (Instituto de Crédito Oficial — Spanish official credit institution) subsidies—managed through the banking sector—and job protection through Temporary Redundancy Plans (ERTEs) have been key.
  • In the Community of Andalusia, card expenditure—which fell by more than 50% while the confinement measures were in place—has returned to a y-o-y growth rate of 10%, a recovery that continues in July. However, the economic recovery will be slow and incomplete. Pre-crisis GDP levels will not be recovered until the end of 2022, or even until 2023. The recovery will be stronger if we address vulnerabilities.
  • The labor market faces further problems to those resolved by the 2010 and 2012 labor reforms. As a result, Spain—a pattern particularly adverse in Andalusia—has a much higher unemployment rate than the rest of Europe (especially in terms of long-term unemployment and young people), as well as a greater prevalence of temporary contracts.
  • In addition to reforms that facilitate job creation on a continuing basis and increase labor productivity, policies that attract investment and ensure the sustainability of the welfare state are also needed.
  • All reforms aimed at improving the future economic foundations of the Community of Andalusia must take maximum advantage of the international cooperation, aid and be taken coordination with the European Union policies that will be put in place.

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