June 8, 2020 / 11:14 AM / a month ago

Spain heads for its worst recession on record, central bank says

MADRID (Reuters) - Spain’s economy may shrink less than feared this year, but the recession will nevertheless be about three times as bad as the record contraction of 2009 at the height of the global financial crisis, the central bank said on Monday.

A construction worker stands on a scaffolding at the Bank of Spain in central Madrid, Spain, November 13, 2015. Spanish national consumer prices fell 0.7 percent year-on-year in October according to final data from the National Statistics Institute (INE) on Friday, in line with preliminary estimates and compared with a 0.9 percent drop a month earlier. REUTERS/Andrea Comas

The economy could contract by 9% to 11.6% in 2020 as the fallout from the coronavirus pandemic hits the tourism-dependent country more than others in Europe, the central bank said regarding what it sees as the most likely case.

The Bank of Spain’s previous central scenario was for a 9.5% to 12.4% contraction. Spain’s economy shrank by 3.7% in 2009.

The impact of a lockdown that started in mid-March will be fully felt in the second quarter, with a contraction likely around 16% to 21.8%, the central bank said.

The first quarter’s 5.2% contraction was already the sharpest drop since the historical series began in 1970 and twice as much as the worst quarter of 2009.

“In the short term, the Spanish economy is going to contract further. It will take a little longer to recover the economic dynamism, but in 2021 the recovery will be a little more intense than in the euro zone average,” Oscar Arce, the Bank of Spain’s director general for economics, told a news briefing.

The central bank sees the economy starting to recover in the second part of the year, with GDP likely to bounce back in 2021 and grow by 7.7% to 9.1% from a previous estimate by the central bank of 6.1% to 8.5%.

The economic projections come a few days after the European Central Bank said it expected the euro zone to shrink by 8.7% this year in a baseline scenario.

The Spanish central bank also included a more severe and less-likely horizon where the economy could fall by up to 15.1% in 2020 as it cannot rule “more adverse scenarios” due to uncertainty over a hypothetical new wave of coronavirus.

As the world economies are taking on more debt to fight off the consequences from the COVID-19 fallout, both public debt and deficit figures are rising.

The Bank of Spain expected the country’s debt-to-GDP ratio to rise up to 119.3% in 2020 and the deficit to grow up to 11.2% this year from 2.8% in 2019.

Reporting By Jesús Aguado and Emma Pinedo; editing by Ingrid Melander, Larry King

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