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The fall in GDP expected as a result of COVID-19 will be unparalleled in history. The decline in GDP per working-age population in 2020 is expected to be 10% greater than the decline seen in 2019, marking a return to levels seen in 2015.
Twenty years ago, the Spanish economy started its journey into the 21st century after joining the eurozone in 1999. Since then, Spain has faced two economic expansions and two intense crises of a very different nature, with important consequences for economic policy.
This Economic Watch assesses the structural shocks that explain the cyclical behavior of the Spanish economy during the COVID-19 crisis. For this purpose, we use information from the latest forecasts from BBVA Research (2020) which are exogenous to the model.
In Castilla-La Mancha, GDP could fall between 6.4% and 9% depending on the scenario and the recovery by 2021 could be insufficient to recover the GDP levels of early 2019. Employment could fall between 6.1% and 8.7% in 2020, which would mean losing between 20,000 and 32,000 jobs in the biennium.
The drop in the volume of global trade is reflecting the most severe global recession since the Second World War, both due to the economies affected and the intensity of the expected falls in GDP over the middle quarters of 2020.
The COVID-19 health crisis has led to a steep fall in economic activity and employment. The recovery of the labor market will depend on how firms adapt to the new normal, the adjustment of global value chains, changing consumer preferences, and the effects of automation and digitalization.
Baseline assumes real GDP declines by 4.4% in 2020. Peak unemployment reached, but risks to the labor market remain. Disinflationary headwinds abate, but inflation to remain low in 2020. Fed to keep rates at the Zero Lower Bound, balance sheet growth to continue.
Our base case for 2020-2025 GDP growth forecasts does not point to the recovery of the fourth quarter 2019 GDP level until the end of 2023.