• Spain's real estate sector after the shock of COVID-19

    SpanishCatalan
    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica

    The COVID-19 pandemic is severely impacting economic activity and the real estate sector is also feeling the effects, albeit not as much as other sectors. Specifically, at CaixaBank Research we expect GDP to fall by between 13% and 15% in 2020 and not to return to pre-crisis levels until the end of 2023. However, despite the seriousness of the situation and the high uncertainty regarding how the pandemic will develop, it is important to note that the sector is supported by a much stronger foundation than in the previous crisis of 2008.

    Before the outbreak of the coronavirus, the financial situation of Spanish households and companies in the sector was generally healthier than it was 12 years ago. Moreover, the number of new properties being built was not excessive in relation to the demographic trend. Banks also have much better solvency and liquidity ratios. All these factors make us more confident in the sector's ability to weather the current crisis.

    Nevertheless, the scope of the economic impact of COVID-19 will significantly affect the labour market and, consequently, the demand for housing. House sales fell by 39.2% year-on-year in April and we expect a drop of between 30% and 40% for 2020 (with a gradual recovery in 2021). Household income is being eroded and uncertainty about future employment prospects may lead to an increase in precautionary saving by households and the postponement of long-term investment decisions. House sales to foreigners, who accounted for 12.5% of the total in 2019, will be particularly affected.

    Construction activity was directly hit during the state of emergency but resumed relatively quickly as restrictions were lifted. All the same, a significant slowdown in the initiation of new building projects is highly likely due to the uncertain climate. New building permits could decline by 20% to 40% by 2020.

    Given the drop in demand, house prices will undergo a significant adjustment and, by the end of 2021, could be 6% to 9% below their pre-crisis levels in Spain as a whole. Nevertheless, there will be considerable differences, both geographical and in the type of housing, with all the evidence pointing to tourist areas and second-hand properties suffering the biggest decline.

    The rental market is likely to be less affected as it is supported by higher demand given the difficulties faced by households to buy a home. In fact, we have devoted the article «To buy or to rent? A question of income but particularly of savings capacity» in this Sector Report to an analysis of housing affordability for renters.

    Finally, we should also note that the current crisis is triggering changes in many different aspects of our lives, a large number of them related to our residential preferences (never have we spent so much time in our homes!). The pandemic could also accelerate some changes in areas such as the modernisation of homes, which would support the transition to a more sustainable economy.

    Once the peak of the epidemic is over, we must focus all our efforts on recovery. The resulting economic and social changes may be far-reaching and will entail a transformation of the real estate market. Given this situation, we must be able to turn the challenges into opportunities. Only then will we #ComeOutStronger.

    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • Foreign demand for housing, key to the sector's recovery

    SpanishCatalan

    The COVID-19 crisis is severely affecting house purchases. Once the slump in transactions during the lockdown has been overcome, the evolution in demand will largely depend on the recovery of the labour market and international tourism over the coming months. Our forecast scenario predicts a gradual recovery in demand, although the more than half a million transactions recorded in 2019 will not be repeated, even in 2021.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica
    House sales were severely hit by the coronavirus crisis in the first half of 2020

    During the weeks the state of emergency was in place, the buying and selling of property was in hibernation. Restrictions on non-essential movements and the temporary closure of physical real estate agencies and notary offices except for urgent, pressing cases paralysed new real estate transactions. According to figures from the National Statistics Institute, in April sales slumped by 39.2% year-on-year while credit to purchase housing was down by 51.0% year-on-year. Similarly, national accounting data show that residential investment fell by 9.0% quarter-on-quarter in Q1 2020, a drop of around 50% in the second half of March if we assume that residential investment had remained stable until 14 March.

    Thanks to digital technologies the sector has remained operational

    Despite these very large figures, thanks to digital technologies the sector has remained operational throughout the state of emergency. According to the information published on several real estate portals, online property searches increased significantly during the weeks of lockdown (especially related to homes with more outdoor space, pointing to changes in demand preferences) and real estate agencies have continued to offer their services online (with virtual visits to apartments, etc.). With regard to new builds, market data indicate that the rate of deliveries has followed the planned schedule except for some occasional delays (at present, houses are being delivered whose purchase decision was made approximately 18 months ago), although the sale deadlines for new developments are being extended.

    Once this first stage of hibernation has been overcome and the economy adapts to the «new normal», one question comes to the fore: how will housing demand evolve in the medium term? To answer this question, we will examine the main factors that determine demand for housing: the gross disposable income of households, the formation of new households, financial conditions, foreign demand and the demand for second homes.

    p6
    Gross disposable household income

    The COVID-19 crisis is having an unprecedented impact on the labour market. Social Security registration data showed a decrease of almost 950,000 workers between 12 March and 30 April (the period with the greatest restrictions on activity), most of these workers being on temporary contracts (approximately 70% of the total). This figure does not include employees affected by Spain's furlough measures or ERTE (around 3.4 million in April)1 as they are still registered as employees with Social Security even though they are not working, nor the self-employed whose work has been interrupted (1.3 million in April). In other words, if we take into account the workers leaving the Social Security registration system, those affected by furlough measures and self-employed workers who have requested the extraordinary allowance for business interruption, we calculate that more than 30% of workers were unable to work on 30 April.

    However, as economic activity returns to normal, furloughed workers are gradually starting to return to their jobs and employment is being created again (in May, Social Security registration increased by 188,000 and the number of furloughed employees fell to just under 3 million). We expect this improvement to continue in the second half of the year, although 2020 could still end with an increase in unemployment of between 1.7 million and 1.9 million compared to Q4 2019.2 The unemployment rate would rise in Q3 2020 to an interval of 21.5% to 22.7%, falling again in 2021 (between 18.1% and 19.8% by the end of 2021).

    The bleak outlook for the labour market has had a severe impact on household income. The various social and economic support measures adopted by the government aim to offset part of these losses by, for example, relaxing the conditions to receive unemployment benefit, providing assistance for the self-employed and specific allowances for temporary workers who are not entitled to unemployment benefit, as well as approving a minimum living wage and other measures, such as guaranteeing basic supplies and the moratorium on mortgages and consumer loans for vulnerable families.3  The banking sector has also taken the initiative to complement several of these measures, for instance by extending the mortgage moratorium from 3 to 12 months.4 Moreover, the property development sector has implemented supportive measures such as moratoriums on the payment of deposits normally put down before a property is delivered.

    Increased uncertainty about the economic and employment outlook is likely to affect housing demand over the coming quarters. Generally speaking, in economic crises consumers tend to increase their precautionary savings and postpone their consumption of durables and long-term investments, such as buying a home. This is being borne out by the available data: investment in residential housing construction fell by 9.0% in Q1 2020, the largest decline since the series started in 1995. Furthermore, European Commission data for Q2 2020 show that the percentage of households intending to buy a home in the next 12 months is very close to its historical minimum.

    • 1. Workers affected by furlough measures (ERTE) tend to be on a permanent contract.
    • 2. These forecasts assume that, in Q4 2020, approximately 15% of workers affected by furlough measures or by their business closing will become unemployed.
    • 3. For more details, see the article "Economic measures to counteract the impact of COVID-19 in Spain", available at: https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/economic-measures-counteract-impact-covid-19-spain.
    • 4. See the communiqué (in Spanish) by the Spanish Banking Association at: https://www.aebanca.es/noticias/comunicados/los-beneficiarios-de-la-moratoria-aprobada-por-el-gobierno-podran-complementarla-con-la-moratoria-sectorial/.
    p8
    Job losses among the younger population and the decline in immigration

    will slow down the formation of households and consequently the demand for a main residence.

    Creation of households

    Household formation will most likely slow down during the crisis. On the one hand, the deteriorating employment situation of young people, who are more affected by job losses since many of them are often on temporary contracts, may lead them to postpone the decision to form their own household. On the other hand, it is very likely that the restrictions on international movements established by many countries as a result of COVID-19 will curb the number of immigrants entering Spain in 2020. It should be noted that, since 2015, Spain has once again become a net recipient of immigrants after years of crisis in which there were many more immigrants departing than arriving.5 Indeed, of the 322,600 new households that have been formed in the past five years,6 a large share include foreign nationals (76% of the total), either exclusively or in mixed households. In fact, in the past two years (2018 and 2019), households made up solely of Spanish nationals have decreased, highlighting the importance of immigration in maintaining Spain's population dynamics.

    The composition of households in terms of nationality is relevant to the housing market, as the propensity to rent is much higher among foreigners: 65.6% rented their main residence compared with 12.5% of households comprised exclusively of Spaniards. Despite lower immigration inflows, demand for rental housing is expected to continue to rise as increased uncertainty about job prospects may affect the decision to buy, as already mentioned.

    • 5. See the article «The return of immigration to Spain» available at https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/return-immigration-spain.
    • 6. Figures from the continuous household survey (ECH). The data from the Labour Force Survey (EPA) show a slightly higher increase in the number of households between 2014 and 2019, of 384,900. We have used the ECH data because it provides a breakdown by nationality of household members and whether the main residence is rented or owned.
    p8
    p 10
    Financial conditions

    The COVID-19 crisis initially led to global financial conditions becoming notably tougher due to marked volatility in financial markets and risk aversion on the part of investors. The major central banks were quick to respond, however, acting rapidly and decisively. The ECB adopted a package of extraordinary measures in March, extended in April and June, aimed at ensuring abundant liquidity, easing credit conditions for households and businesses and anchoring a low interest rate environment.7

    The low interest rate environment provides an important breathing space for families since it helps to ensure the financial burden borne by households due to debt interest payments remains very low (0.6% of gross disposable income in 2019).8 Benchmark interest rates are expected to remain around their current level for several years.

    • 7. The measures adopted by the ECB include a series of Pandemic Emergency Longer-term Refinancing Operations (PELTRO), reducing the cost of TLTROs and increasing their volume, relaxing the various regulatory requirements on the financial sector, broadening the universe of assets accepted as collateral in liquidity injections in several markets and expanding the asset purchases planned for 2020.
    • 8. The financial burden of debt has also been reduced, albeit to a lesser extent, by the decline in household debt: this represented 91% of gross household disposable income in 2019, slightly below the average household debt in the euro area and far below the peak reached in 2009 (132%).
    Part of the decline in demand, related to tourism and foreigners, will last longer

    However, demand for second homes by Spaniards might be less affected in relative terms.

    Foreign demand

    In recent years, purchases by foreigners have been fundamental in boosting Spain's real estate sector, especially in large cities and tourist areas. In 2019, foreigners bought almost 63,000 homes in Spain, accounting for 12.5% of total purchases according to the College of Registrars. The geographical distribution is very uneven: while foreigners are barely present in some provinces, in other, more tourist-related provinces their share is highly significant, as in the case of Alicante with more than 40%.

    As expected, COVID-19 has had a severe impact on foreign purchases. The global nature of the pandemic has meant that many countries have imposed restrictions on people's movements. In particular, the countries that tend to buy most Spanish properties (UK and France) have taken steps similar to Spain. We can therefore observe that Q1 sales to foreigners totalled 14,850, down by 6.4% year-on-year. The decline in property purchases by UK citizens (–14%) is particularly large, accentuating a downward trend that was already noticeable. On the other hand, French and German buyers, the second and third largest nationalities, held up fairly well in the first quarter, although the closing of borders and paralysis of the real estate market in the second quarter will slow down the trend for this variable.

    p10

    Given the gradual recovery expected for international flows of people, the decline in foreign demand for housing (in many cases for holiday purposes or investment in tourist rental accommodation) will probably be more persistent and take considerably longer to recover. Nevertheless, in May and June Google Trends data show an increase in the popularity of searches for «property Spain» in the United Kingdom, «acheter maison Espagne» in France and «Haus Spanien» in Germany, suggesting international buyers are still interested. In addition, the low interest rate environment and volatile financial markets increase the attractiveness of the real estate sector compared with other investment alternatives. In this respect, domestic and international investors continue to show an interest in the Spanish market.

    p 12
    Demand for second homes

    Second homes have a significant weight in the Spanish real estate market: they represent 14.6% of the stock of housing and in 2019 accounted for 13.6% of all sales (about 75,000).9 During the state of emergency, second homes unfortunately made the headlines because of unauthorised travel to these properties and the risk this posed by spreading the virus to less affected regions and populations. But it also highlighted the fact that owning a second home is a widespread practice in Spain.

    • 9. Sales of second homes are estimated based on the sales carried out in a province other than the buyer’s residence.
    p12

    A household's age and economic situation are the main factors that influence the decision to acquire a second home.10 Despite the fact that the crisis is affecting all households to a greater or lesser extent, the population aged over 40 with a medium-high income level, who are the potential buyers of second homes, are suffering less from its consequences. It is therefore to be expected that second home sales will decline less than sales overall, a pattern already observed in the previous recession: the share of second home sales increased from 13.4% in 2006 to 17.3% on average between 2008 and 2013.

    • 10. See the article «Second homes in Spain: seaside or sierra?» available at: https://www.caixabankresearch.com/en/sector-analysis/real-estate/second-homes-spain-seaside-or-sierra.
    Outlook for house sales in 2020-2021

    The following are the prospects and main aspects regarding the real estate sector in 2020-2021 according to CaixaBank Research, with the proviso that forecasts are subject to a much higher degree of uncertainty than usual:

    • Job losses among the younger population and the decline in the number of immigrants moving to Spain will slow down the formation of households and, consequently, the purchase of main residences. Rented accommodation might be boosted by this situation.
    • Higher uncertainty could increase precautionary savings and delay long-term investment decisions. However, financial conditions will support the recovery in demand.
    • Part of the decline in demand, related to tourism and the foreign market, will be more persistent. On the other hand, demand for second homes by Spaniards might be less affected in relative terms.
    • The combination of these factors leads us to estimate that real estate sales could fall by 30% to 40%, totalling 300,000 to 350,000 properties in 2020. The uncertainty is even higher in 2021 and we have therefore projected an interval of 310,000 to 450,000 properties.
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • A severe blow for a well-positioned sector

    SpanishCatalan

    It is inevitable that the property development and construction sectors, which are very sensitive to economic conditions and confidence levels, will contract significantly this year. We expect a notable decline in new building permits and a severe impact on employment in the construction industry. However, the nature of the shock and the state of the sector before the appearance of COVID-19, much more favourable than a decade ago, suggest it should be able to recover.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica
    Impact on construction activity

    Construction activity was directly affected throughout the state of emergency, especially during the two weeks when all non-essential work was restricted. The slump in cement consumption in April, –50% year-on-year, bears witness to this. However, as restrictions on economic activity have been lifted, construction work that was already underway has resumed relatively quickly and, despite some supply chain disruptions, no significant delays are expected in the delivery of new housing in 2020. The latest data available on completion certificates, for March, show that 81,700 homes were finished in the past 12 months (+17.6% year-on-year). Given that more than 100,000 homes were granted permits in 2019, we predict that between 80,000 and 100,000 could be completed this year.

    The uncertain climate will affect the rate at which new real estate projects are started
    Nueva edificación

    On the other hand, it is very likely that the start of new building projects will slow down this year due to the uncertain climate and greater risk aversion, which would affect the number of homes completed in 2021. New building permits fell by 37% year–on–year in March compared to an increase of 5.5% in 2019. The impact COVID-19 may have on new construction will largely depend on expectations regarding the persistence of the economic shock. Real estate development is a long-term business and requires an environment of relative price stability to ensure the development returns a profit within two years. In this respect, the decrease in the construction sector's economic sentiment index to –32.4 points in May (compared to an average of –7 points in 2019) points to further declines in activity over the coming months.

    We therefore expect the number of new building permits to fall significantly in 2020. Uncertainty is very high and this is reflected in a relatively wide range of forecasts: we predict a decline of between 40% and 20%; i.e. 65,000 to 85,000 new building permits. 2021 should see a gradual recovery in new building permits thanks to less economic uncertainty and developments in the pandemic (between 75,000 and 95,000 homes).

    p 15
    Effects on the labor market

    The labour market has been hard hit by the pandemic. Between 11 March and 31 May, the number of workers registered with Social Security as employed in the construction sector fell by 5.9% (–75,000).1 In addition, 93,400 construction workers were affected by furlough measures and 168,647 self-employed persons had applied for the extraordinary allowance due to business interruption as of 31 May. Therefore, 26.4% of the sector's registered workers at 11 March were not working by the end of May. This high percentage, however, is lower than the average for the economy as a whole (29.1%), since there are sectors such as hospitality (79.7%) and retail (36%) that have been much harder hit by the crisis (see the following chart). Real estate activities, on the other hand, have suffered relatively less in terms of Social Security registered workers (-6,700 workers between 11 March and 31 May, –4.5%) although a large number of workers have been furloughed (16.7%) and 43% of self-employed workers in the sector have requested the extraordinary allowance for business interruption.

    Over the coming months, the expected number of jobs to be created by firms in the construction industry is not encouraging. In May, the European Commission's indicator for the sector's recruitment prospects stood at –30 points, 10 points better than the minimum reached in April (–40 points) but well below the average of –7 points recorded in the 12 pre-crisis months.

    The big job losses seen in construction are due to the sector's typical employment system and company structure. Specifically, the larger number of jobs lost in an economic shock can be partly explained by a high degree of temporary employment (40% of workers in the construction sector were on a temporary contract in 2019), by a high proportion of self-employed workers (30% of the total) and by small companies (55% of construction companies in Spain have no employees and an additional 40% have fewer than 10). This situation highlights the sector's structural problems, which become more visible at times of crisis. In this respect, the strategy followed to exit the recession should promote company growth and human capital management, for instance via measures to retain skilled labour and invest in personnel training and education.

    • 1. Construction lost 157,000 registered workers in the second half of March, although the figures for April and May were more positive and showed a notable recovery in the jobs lost.
    p 16
    The current economic shock is of a very different nature than the one causing the previous recession, as it has not originated in the real estate sector

    The starting point for economic agents is much more solid than in 2008.

    Sector situation regarding the 2008 crisis

    However, it is also very important to stress that the sector's starting point is much more solid than when the previous crisis erupted in 2008, suggesting it might recover more readily:

    • Construction companies and developers have significantly improved their financial position. The considerable reduction in the share of short-term debt on company balance sheets is a determining factor in preventing liquidity problems from leading to solvency problems.
    • The production of new builds does not seem excessive in relation to the structural need for housing. In 2019, new building permits totalled 106,266 homes (one eighth of the permits in 2006) compared to the 134,176 new homes created last year according to the EAP. In addition, new homes are being built in areas with proven high demand and a more dynamic demographic profile.
    • Banks are less exposed to the development and construction sector. The share of credit for the real estate sector on bank balance sheets has been significantly reduced. Moreover, the non-performing loan ratio for bank loans to the sector has fallen dramatically since 2013 (the peak) and, in general, banking's solvency and liquidity situation is more robust and comfortable.
    p 17
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • House prices will be affected by the crisis but with notable differences depending on the geographical location and type of property

    SpanishCatalan

    Given the dramatic decline in demand, house prices are likely to undergo some adjustment in the period 2020-2021, although there will be significant differences depending on the property's location and type. Specifically, we expect house prices to fall more sharply in the second-hand market and tourist areas, which have been severely affected by the restrictions on international travel.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica
    House prices were already slowing down before the COVID-19 shock

    According to data published by the Ministry of Transport, Mobility and Urban Agenda (based on valuations), house prices fell by 0.8% quarter-on-quarter in Q1 2020. In year-on-year terms, progress was still positive with a slight increase of 0.3%, albeit a marked slowdown compared with the 2.1% year-on-year growth recorded in Q4 2019. The house price data published by the National Statistics Institute (based on transaction prices) also posted a slowdown to 3.2% year-on-year in Q1 2020 compared with an increase of 3.6% in Q4 2020. This deceleration was caused by lower growth in the price of second-hand housing (0.4% quarter-on-quarter), while new builds recorded a significant rise (5.1% quarter-on-quarter).

    House price indicators from different real estate portals (based on the sale prices on offer), which are published more frequently and with less time lag, are gradually starting to reflect the impact of the crisis. For example, the Fotocasa index, which reflects the trend in the price per square metre of second-hand housing, fell by 1.1% year-on-year in May, while the Tinsa index showed a tiny increase on the Mediterranean coast (0.3%). However, significant growth is still being recorded in large cities (3.6%) and the Balearic and Canary Islands (3.8%), although in both cases a slowdown can be observed compared with the growth posted in 2019. Lower prices are also starting to be seen in apartments offered for sale on real estate portals, although the impact on transaction prices is still small, for the time being.

    p 19
    In the second half of the year, the negative trend in house prices is expected to increase

    In the second half of the year, the negative trend in house prices is expected to increase. Typically, after a significant drop in sales, prices tend to adjust a few months later. On this occasion the decline in sales has been very sharp due to the lockdown measures restricting people's mobility. It is therefore to be expected that house prices will gradually react to the new environment.

    There is considerable uncertainty regarding the extent of the adjustment in house prices during this recession. We believe it very unlikely that prices will adjust as much as they did during the previous recessionary period and the price adjustment period is also likely to be significantly shorter. As already mentioned in the previous article, the real estate sector is not the cause of the current shock nor has it accumulated imbalances that would require price adjustment mechanisms to be implemented to regulate and control the system. In particular, real estate was not overpriced in general before COVID-19.1 All this has led us to produce scenarios in which the adjustment in house prices will be more contained than in the last crisis. Specifically, we predict that house prices could fall by between 6% and 9% during the 2020-2021 period in Spain as a whole. While house prices would start to show positive growth rates in the second half of 2021, we do not expect them to return to the pre-crisis level before 2024.

    • 1. See the article «The widening gap between Spain's house prices» available at: https://www.caixabankresearch.com/en/sector-analysis/real-estate/widening-gap-between-spains-house-prices.
    In 2020-2021, house prices will adjust to some extent,

    this correction being larger in tourist areas and for second-hand housing.

    The trend in price will vary greatly depending on the location of the property

    Those markets that already had more price tension, such as the centre of big cities and tourist areas, will see a bigger adjustment. The size of the adjustment will partly depend on how investor interest in these areas evolves because, in recent years, such investments have contributed to the increased dynamism of these markets.2 Changes in residential preferences in terms of where and how to live, encouraged by, for instance, the greater prevalence of working from home in the «new normal», may reduce pressure on residential prices in the most congested cities and shift some of the demand to conurbations with the best connections to workplaces.

    On the other hand, the house price trend in tourist areas will be highly dependent on the recovery in international travel. Although restrictions were partially lifted at the end of June, the recovery in tourist flows is expected to be incomplete as long as there is no vaccine or effective treatment against the disease.

    • 2. See Álvarez, L, Blanco, R. and García-Posada, M. (2020), «La inversión extranjera en el mercado inmobiliario residencial español entre 2007 y 2019», Boletín Económico del Banco de España 2/2020.
    p 21
    There may also be significant differences in price trends by housing type

    The decline in house prices is likely to be greater in the second-hand market, which accounts for the bulk of transactions (over 80% in 2019), since this is usually more sensitive to the economic cycle. The decline in the price of new housing will be smaller as supply is more limited in this segment. This dichotomy in the evolution of the price of new and used housing was also observed in the previous recession: from its peak in 2008 to its lowest point in 2013, the price of new housing fell by 32% in cumulative terms while second-hand housing saw a much bigger cumulative drop of 43.7%. Moreover, this pattern was observed in all the autonomous regions.

    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • The COVID-19 crisis will speed up the transformation of the real estate sector

    SpanishCatalan

    The current crisis is triggering changes in many aspects of our lives, a large number of them related to our residential preferences. For example, working from home can transform how and where we live. The pandemic has also boosted the digitisation of the real estate sector and could speed up certain changes in other areas such as house modernisation, supporting the transition to a more sustainable economy.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica
    The crisis as a promoter of telework

    Beyond a short-term analysis of how the economy and real estate sector will evolve this year and next, it is important to ask whether, once this pandemic is over, we will return to a situation similar to before the shock or whether there will be substantial changes in our society and in the way we live and relate to each other. These changes can permanently affect our consumer habits and preferences and cover a wide spectrum, from how we are educated or work to how we shop and play sports, for example. Although it is difficult to provide any definitive answers to this question, some transformations were already underway before the pandemic which may have been speeded up by the crisis and precipitate a permanent change.1 

    The crisis has boosted working from home. During the pandemic, those with the opportunity to do so have preferred to work from home to enable social distancing and avoid unnecessary travel. However, even before the pandemic an increasing number of companies were encouraging their employees to work from home by creating the necessary infrastructure for remote connections, providing workers with mobile devices and offering them the necessary training in digital tools. A recent study by CaixaBank Research estimates that, at present, 32.6% of all employees in Spain could potentially carry out their work remotely, a percentage similar to that of most advanced economies.2 In this respect, it is very likely that working from home was one of the changes that were already taking place and will accelerate as a result of the crisis.

    • 1. See the Dossier «The world after COVID-19» in MR05/2020 available at https://www.caixabankresearch.com/en/monthly-report/445/may-2020/world-after-covid-19, which comments on the changes the pandemic will bring to the economy and society.
    • 2. See the article «La COVID-19 outbreak boosts remote working» available at https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/covid-19-outbreak-boosts-remote-working. And Dingel, J. and Neiman, B. (2020), «How many jobs can be done at home?». NBER Working Papers.
    Telework influences the preferences of buyers when choosing a home

    The increase in remote working has important implications for the real estate market as it directly affects buyer preferences regarding the location of the property  (people can live further away from their workplace if they have to commute fewer days a week) and the size and layout of the home (with demand for larger, more versatile homes, with different uses of the space, for instance).3 This transformation has an impact that goes beyond the real estate sector itself, seeing as urban, transport and public service planning will also have to adapt to the new situation.

    Changes in the way we work will affect our way of life and can help to speed up the economic transition to a more sustainable, environmentally friendly system. Buyers are increasingly paying attention to issues related to the sustainability of homes and their energy efficiency, a change that was already taking place but may accelerate in the wake of the pandemic. The crisis has also exposed the shortcomings in some housing that does not meet the minimum health requirements. In this respect, the modernisation of existing housing may become more important, as such properties tended to be built based on very different sustainability standards to those now required for new builds.

    • 3. Likewise, the long lockdown has made consumers more appreciative of having a terrace or some outdoor space for private use, although it is not yet clear whether this change in preference is temporary or a more persistent phenomenon, should it be necessary to reintroduce some lockdown measures due to outbreaks, for example.
    The crisis has also shown that the most digitised companies are coming out stronger

    Firms that had already invested in adopting new digital technologies have been able to continue offering their services remotely, for example through virtual tours of properties. Potential buyers have also been offered better conditions, for instance by being able to book an apartment for longer than usual during the state
    of emergency and with no cancellation charge. In many cases, the client's experience may have improved. Once the pandemic is over, this could lead to further client demands for greater flexibility and more personalised services.

    Another aspect the coronavirus crisis has exposed is the huge difficulty of building houses while complying with social distancing measures on site. This is partly due to the very nature of the activity. But it also highlights the fact that the construction sector is lagging behind in adopting new digital technologies and robotisation. For example, the number of workers could be reduced on sites with more industrialised production processes, where many of the specialised jobs are more automated and performed at another location.

    The rental market and accessibility to housing

    The crisis has also brought about changes in the rental market. In recent years the number of flats used for short-term tourist rental has grown exponentially. With the collapse of tourism, these properties have become vacant and many private investors have decided to transfer them to conventional rentals. This process is likely to alter as international tourism recovers but it may not be completely reversed if investors perceive greater risk in the short-term market (e.g. more volatile returns).

    On a more negative note, the crisis has also exposed problems of housing affordability, especially among the most vulnerable people who tend to live in rented accommodation.14 The government has adopted several measures to support renters in the face of the COVID-19 crisis, such as suspending evictions until the end of the year, the automatic renewal of six-month rental contracts and the provision of micro-credit to cover rent payments. Such measures will help to address the current social emergency. However, the rental market suffers from structural problems which require stable regulations that encourage investment. One of the priorities in this respect should be the creation of a significant amount of accommodation at affordable rents.

    In short, COVID-19 has not only brought us a profound economic crisis. Once we get over this calamity, and we will, the resulting economic and social changes may be far-reaching with a huge impact on the real estate market in the long term. There's no turning back.

    • 4. The next article «To buy or to rent? A question of income but particularly of savings capacity» in this Sector Report analyses to what extent those renting a property can afford to buy.
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • An unprecedented global economic recessio

    SpanishCatalan

    The spread of the coronavirus throughout the world has come as an unprecedented shock to the global economy. The Spanish economy has been particularly hard hit, partly because of its greater dependence on international tourism. In the second half of the year, we expect the economic recovery to take hold thanks to the easing of social distancing measures and the boost provided by the wide range of fiscal and monetary measures adopted. However, we believe the economy will continue to operate below potential over the next few years.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Miniatura
    Área geográfica
    Global activity will fall sharply in 2020

    At the beginning of the year, the forecasts pointed to Spain's real estate sector continuing to expand in 2020, albeit at a more moderate rate than in previous years. However, these scenarios were soon overtaken by the global spread of the coronavirus. Although it is still very difficult to calculate the precise economic consequences of this crisis (uncertainty remains very high), they will most probably be of an unprecedented nature, both for the world and for the Spanish economy and, specifically, for the real estate sector.

    Global activity will fall sharply in 2020 (by around 4%), a far greater decline than the slump experienced during the Great Recession of 2009, due to the economic effects of the social distancing measures implemented by most countries to counteract the spread of the virus. To cope with this severe economic shock, a battery of fiscal and monetary measures of extraordinary scope and depth have been rapidly deployed, with the aim of protecting the balance sheets of both households and businesses. The major central banks are also acting quickly and decisively, ensuring abundant liquidity and easier access to credit, as well as anchoring a low interest rate environment. These measures will help to boost economic recovery as from the second half of 2020, a process that should culminate in strong growth in 2021 which could exceed 6% globally.

    The global and Spanish economy are contracting dramatically, a slump that will affect the real estate sector in 2020

    The economic measures being implemented will support the recovery in activity

    The Spanish economy is one of the developed economies with the largest decline in activity

    The Spanish economy is one of the developed economies with the largest decline in activity in the first half of 2020 due to the severe impact of the pandemic and the country's greater dependence on tourism, a sector that has been seriously affected by the crisis as a result of restrictions on the international movement of people. Consequently, after plummeting by 5.2% quarter–on–quarter (-4.1% year-on-year) in the first quarter of the year (the biggest quarter–on–quarter drop since the National Statistics Institute's historical series began in 1995), all available indicators suggest that, in Q2, economic activity suffered a much bigger decline as more weeks were affected by the restrictions associated with the state of emergency. However, from May onwards the initial phases of the lifting of the lockdown helped to gradually reactivate economic activity, as shown by indicators such as electricity consumption and card spending.

    Economic activity will continue to pick up in the second half of 2020

    Nevertheless, the uncertainty surrounding the forecast scenario is exceptionally high, especially because it is not clear how the pandemic will evolve in the future. We have therefore chosen to present a central range of forecasts. One of the key assumptions is that social distancing measures will have to be maintained well into 2021, until an effective vaccine or treatment for COVID-19 is discovered. During this time, it is likely that further outbreaks of infection will occur but it is assumed these will be localised and temporary, and that another full lockdown will not be necessary. All this will hinder the economy's ability to recover which, although we expect to see a significant rebound in 2021, will be unlikely to return to pre-crisis activity levels before 2023.1

    • 1. For a detailed description of this scenario's assumptions and the complete macroeconomic picture, see the article "Economic activity begins to gradually reactivate as the lockdown is lifted", available at https://www.caixabankresearch.com/en/economics-markets/recent-developments/economic-activity-begins-gradually-reactivate-lockdown-lifted.
    p 5
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • The tourism industry in the face of COVID-19: an unprecedented impact

    SpanishCatalan

    COVID-19 is having a huge impact on economic activity in Spain and, in particular, on the tourism industry. At CaixaBank Research we expect GDP to fall by between 13% and 15% in 2020, not returning to its pre-crisis levels until 2023. The outlook in 2020 is even grimmer for Spain's tourism industry as it is one of the sectors hardest hit by the pandemic.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Etiquetas
    Miniatura
    Área geográfica

    After Spain declared a state of emergency on 14 March, the population's mobility was reduced to a minimum; borders were closed and people had to be confined to their homes to check the spread of the coronavirus. As a result, a sector as dependent on mobility as the tourism industry entered a period of almost total inactivity. Only since the lockdown measures have begun to be lifted has the outlook for the sector started to improve. The indicators of card expenditure via CaixaBank's payment terminals suggest that tourist spending has started to wake up from its hibernation and is embarking on an incipient recovery. Consequently, if the health situation is kept under control, a considerable improvement in activity is expected for the second half of 2020, although this will not prevent demand for the year as a whole falling very sharply. According to CaixaBank Research forecasts, by 2020 tourist expenditure by foreigners will fall by around 50% while domestic tourists will spend almost 30% less.

    The tourism business is faced with a very complex situation. There was a total clousure of tourist accommodation during the toughest months of the lockdown, so the spring season was completely lost. This has pushed the sector to resort massively to lines of credit backed by the ICO and also furlough measures (ERTE in Spanish) to ensure that companies can survive without revenue over a period that has lasted more than two months. Given this situation, the tourism industry saw higher job losses than any other sector during the first half of the year. Up to June about 44% of the reduction in workers affiliated to Social Security was due to job losses in tourism companies. Nevertheless, activity indicators point to a gradual recovery in tourism business. According to the card payments made via CaixaBank terminals, whereas 75% of hotels and tourist agencies were still closed in May, during the second week of July this figure fell to 31%. If this improvement in demand prospects persists over the coming months, the sector's recovery will continue and some of the jobs lost should be recovered.

    Accordingly, we estimate that tourism-related GDP could decline by nearly 45% in 2020 as a whole, representing a loss of around 5% of total GDP. This impact will be felt particularly by the autonomous regions in the Mediterranean and on the islands, which are heavily dependent on the influx of international tourists and whose tourism sectors account for a larger share of the regions' business.

    Although the outlook for 2020 is overwhelmingly negative, the medium term could bring cause for more optimism. Up to February 2020, the tourism industry had enjoyed almost a decade of extraordinary results, during which time it took on the investments required to boost its competitiveness. Post-coronavirus tourism will have to adapt its supply to the new situation and be able to meet demands for higher quality and more personalised services, improvements which the sector's entrepreneurs have already been focusing on for several years. For all these reasons, and although COVID-19 has made the future more uncertain than ever, the tourism industry is capable of recovering strongly in the medium term, which would make it a key driver of growth for the Spanish economy.

    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • The toughest year for the tourism industry

    SpanishCatalan

    The health crisis caused by COVID-19 has represented an unprecedented shock for Spain's tourism sector. Demand indicators confirm that the stoppage during the months of lockdown was total, both for international and domestic tourism. The end of the state of emergency and the recovery in international mobility within the EU have helped to revive flows of tourists to Spain. The outlook for the coming months points to a relatively rapid upturn in domestic tourism with a more gradual recovery for international tourist flows, although the delicate situation of the pandemic will still be a major source of uncertainty.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Etiquetas
    Miniatura
    Área geográfica

    Mobility has played a vital role in the success of Spanish tourism in recent decades. The great expansion in international air connections and the connectivity boom brought about by the creation of the Schengen area helped Spain to go from receiving 32 million international tourists in 1995 to over 83 million in 2019, becoming the world's second country in terms of international visitors, only outdone by France. So far, in 2020 the global spread of COVID-19 has put the international and domestic mobility of the world's population on hold. The lockdown measures implemented by a large number of countries to control the pandemic resulted in 183 countries with closed borders or entry restrictions by the end of June. This has caused international tourist flows to plummet and Spain has been no exception.

    The state of emergency and the paralysis of tourism

    Spain declared a state of emergency on 14 March which led to the closure of its borders. Between that date and the 15 June, the first day on which a group of German tourists were allowed onto the island of Mallorca, no foreign tourist could travel to Spain. According to INE figures, 10.5 million international arrivals were recorded between January and May 2020, 63.9% fewer than over the same period in 2019. The extent of the decline is similar if we look at spending by foreign tourists up to May (–61.7%) as well as the overnight stays in tourist accommodations (–61.5%). All this provides unequivocal proof that, in April and May, the slump in international tourism business, which accounts for 70% of tourism demand, has been extraordinarily severe.

    The state of emergency also resulted in a lockdown for the local population so that, until May, the reduction in domestic tourist flows was similar to that for international tourists. Overnight stays in tourist accommodation by Spanish travellers fell by 62.8% year-on-year between January and May. However, the recovery in domestic mobility has been one of the main aspects of Spain coming out of the lockdown, with hotel business picking up slightly at the end of May.

    According to data from the hotel occupancy survey, 82,600 Spanish travellers stayed at a hotel in May, with an average stay of 2.5 nights. This is a very small volume (98% less than in May 2019) but it illustrates that lifting the lockdown has already started to have a positive effect on domestic tourist flows.

    New sources of information to track the evolution of tourism in real time

    Given the current situation, which changes from week to week, the description provided by official data, most of which are available up to May 2020, gives a somewhat outdated picture of sector's current status. Therefore, in recent months economic analysts have particularly focused on exploiting higher frequency indicators that enable us to monitor the situation in real time. A large number of technology companies and public institutions have made an effort to make daily mobility statistics available to the public as these provide an insight into the extent of the impact and, most importantly, how quickly business is getting back to normal.1 

    One particularly useful indicator is produced by Google based on its Google Maps mobile app. As can be seen in the chart, the drop in mobility outside the home during the most intense phase of the state of emergency peaked at 80%2 whereas a clear change in trend can be seen as of 2 May, the first day the lockdown began to be lifted in stages. In just one month, the population's level of mobility reduced its decline compared with pre-COVID levels from 68% to 29%. As already noted, this upturn in mobility at the end of May led to the first overnight stays at hotels during the state of emergency. June's data suggest that the recovery in domestic mobility continued to advance (around –12% at the end of the month) and it will presumably continue to improve over the coming months provided we manage to prevent the spread of the virus without having to return to strict, widespread lockdown measures.

    • 1. The INE has produced a mobility indicator based on data from the main telecommunications companies in Spain. The Ministry of Transport, Mobility and Urban Agenda has published daily mobility statistics from the records of the transport infrastructures it manages (road, train stations, airports, etc.). Among other technology companies, Google (google.com/covid19/mobility/), Apple (apple.com/covid19/mobility) and CityMapper (citymapper.com/cmi) have published mobility statistics based on the use of their navigation applications.
    • 2. The period with the greatest restrictions on mobility was between 30 March and 15 April, when all non-essential activities were prohibited.

    Non-residential mobility in Spain

    Change with respect to the baseline* (%)

    p 5
    Note: Data based on 7-day average. (*) The baseline corresponds to the median mobility recorded on the same weekday between 3 January and 6 February. Source: CaixaBank Research, based on the Google Mobility Report.
    Card payment data show that tourist spending is picking up more slowly than mobility

    Monitoring mobility is extremely useful as it acts as a leading indicator of the mobilisation of tourist flows. However, it does not provide a completely accurate picture of the current situation or trend in consumption, whether tourism-related or otherwise. For this reason, CaixaBank has also invested a lot of effort in developing real-time indicators using big data methodology and based on card payment data via its point-of-sale terminals, taking advantage of information on the country where the payment card was issued and the type of retail business where the payment was made.3 

    What these indicators reveal is that consumption of non-essential goods fell to a minimum during the state of emergency, although it recovered strongly once the restrictions on mobility were lifted. As can be seen in the chart, the trend in retail consumption (textiles, household appliances, etc.) using Spanish payment cards has responded very quickly to improvements in local mobility and, since mid-June, has been at a similar or higher level than the same period in 2019. In the case of leisure and hospitality consumption, which depends largely on the local population but is also regularly consumed by tourists, there is a clear upward trend. During the last week of June, card payments for face-to-face consumption related to leisure and hospitality fell by just 1% year-on-year compared with a drop of around 95% during the state of emergency.

    Nevertheless, as far as tourist expenditure is concerned, the recovery is still a long way off. Domestic tourist consumption improved very slightly after part of Spain entered phase 2 of easing the lockdown at the end of May, when public areas in hotels were reopened, and more significantly after the end of the state of emergency at the end of June, when Spaniards were once again allowed to travel between autonomous regions. However, as shown by the chart, domestic tourist expenditure still registered a 47% year-on-year drop between 6 and 12 July. As for consumption by international tourists, this improved sharply after the first few weeks of open borders for citizens from the Schengen area, posting a 74% year-on-year drop between 6 and 12 July, around 22 percentage points (pp) less than before the borders were opened. In conclusion, tourist expenditure is still at an extraordinarily low level but the improved outlook for tourist mobility following the reopening of regional and international borders between Schengen countries (80% of Spain's demand) suggest that the recovery in tourist expenditure may speed up, provided connectivity between origin and destination countries is reactivated and the pandemic remains under control.

    • 3. CaixaBank Research publishes a weekly report (in Spanish) on the real-time trend in this consumption indicator at https://www.caixabankresearch.com/es/publicaciones/notas-breves-actualidad-economica-y-financiera

    Face-to-face payments via CaixaBank payment terminals

    Year-on-year change (%)

    p 7
    Notes: Tourist expenditure is estimated based on POS terminal payments at hotels and travel agencies. Source: CaixaBank Research, based on internal data.
    According to Google Trends, international tourists are becoming interested in travelling to Spain again

    According to booking and internet search indicators, which point to future demand, interest in tourism in Spain is improving considerably. Google Trends data show that searches carried out from Spain for the term «hotel», which would illustrate domestic tourists interested in making a reservation, went from –84% year-on-year in April to –46% in the last week of June. On the other hand, foreign tourist searches for trips to Spain are picking up in key countries for the Spanish tourism industry. As can be observed in the following charts, if we compare the weekly level of searches carried out from each country with the expected level based on the historical search pattern, we can see that, in the UK and Germany, people's interest in travelling to Spain largely returned to normal during the last week of June, while in the Netherlands it was still slightly below the expected level. In France and Italy, interest was 27% and 47% lower than expected at this point in the year, probably because these are two outbound markets that offer highly competitive domestic alternatives for tourists. In the case of Italy, moreover, the government has launched a direct incentive (up to 150 euros per household) to persuade Italians to opt for a «staycation», so the prospects of Italian tourist arrivals in Spain are less favourable. Finally, in the case of the US, to which the EU has closed its borders, interest in tourism in Spain continues to fall short of its expected level.

    Weekly searches in Google for trips to Spain

    Index (100 = historical peak)

    p 8
    Note: Data from searches for the word «Spain» in each country's official language and within the travel category are used. Expected searches consist of the projected searches carried out based on data from one year previously using an ARIMA model (1, 1, 1
    How the tourism industry will evolve in 2020

    Despite the improved outlook suggested by our analysis of the latest figures, it should not be forgotten that the current scenario is highly uncertain and will depend on striking a balance between mobility and safety until an effective vaccine or treatment against COVID-19 is found. The forecasts presented below are therefore largely dependent on the how the pandemic evolves in Spain and in the outbound markets. Our central forecast scenario assumes that the spread of COVID-19 in Spain is kept under control, although it does include the possibility of spikes which could force localised lockdown measures. We have also worked under the assumption that a vaccine or effective treatment would be available by mid-2021.4

    Under these assumptions, we expect domestic tourist expenditure to pick up considerably during the second half of the year. Specifically, we predict it will reach very similar, albeit slightly lower, levels than those recorded over the same period in 2019, due to the balance of limiting and supporting factors. Firstly, the health situation will continue to hinder the recovery in demand due to (i) a perception of less safety, (ii) uncertainty regarding the evolution of the pandemic and (iii) the social distancing measures that will be maintained throughout the year. Furthermore, we believe the consequences of the current crisis on the purchasing power of households will lead many Spaniards to spend less on tourism this year for purely economic reasons. On the other hand, the factors supporting the recovery will be (i) the good connectivity offered by the road network for private transport within the peninsula, (ii) the recovery in domestic flights, which are easier to coordinate through Spain's state-owned airport operator (AENA), and (iii) the substitution of tourist trips abroad with domestic trips. This last factor looks like being one of the most decisive for the recovery in domestic tourism. Between July and December 2019, tourists who are resident in Spain spent 9.5 billion euros abroad compared with 18.8 billion euros on domestic tourism. According to our forecasts, this substitution effect could contribute about 2.5 billion euros to domestic tourism.

    • 4. For a detailed description of this scenario's assumptions and the full macroeconomic picture, see the article «Economic activity beings to gradually reactivate as the lockdown is lifted», available at https://www.caixabankresearch.com/en/economics-markets/recent-developments/economic-activity-begins-gradually-reactivate-lockdown-lifted.
    p 8

    Consequently, if our predicted recovery takes place, domestic tourism expenditure for 2020 as a whole could fall by around 30%, some 8.4 billion euros less than in 2019 mainly as a result of the stoppage of business between March and June.

    On the other hand, as can be seen in the chart, our forecasts for international tourism expenditure show a somewhat less positive trend for the rest of the year due to (i) the loss of non-EU tourism, (ii) a gradual recovery in connectivity in the EU (highly dependent on air connections and the situation of the pandemic in each outbound market) and (iii) a lower propensity to travel outside the country of residence due to uncertainty about developments in the pandemic. In short, according to our estimates, spending by foreign tourists will fall by about 25% year-on-year between July and December 2020, which would result in a decline of more than 50% for the whole of 2020 (47 billion euros less than in 2019).

    Tourist expenditure: domestic (left) and international (right)

    Million euros

    p 10
    Source: CaixaBank Research, based on data from the National Statistics Institute.

    Overall, domestic tourism will not be able to offset the effect of the drop in foreign demand, which accounted for 70% of tourism expenditure in 2019 and will represent around 60% in 2020. The total tourist expenditure made by both resident and foreign tourists in Spain could be around 68 billion euros in 2020, a drop of nearly 45% compared to the previous year.

    The complexity of the environment in which the tourism industry currently operates also makes it necessary to take into account the evolution of the pandemic in Spain's  outbound markets, making the situation even more uncertain. As can be seen in the table, which looks at 10 of the main countries sending tourists to Spain, the health and connectivity situation seems relatively favourable. Spain's dependence on European countries, where the spread of the pandemic seems to be more under control, means that the health-related prospects of a large proportion of its international tourist demand look positive.

    Only the markets on the American continent, which account for less than 10% of international tourist demand in Spain, have a clearly negative outlook. In any case, although the situation in the outbound markets is good, it is still uncertain.

    Situation of the main outbound markets for Spain's tourism industry at the end of June

    p 11
    Note: (*) The charts show the growth in the number of infections per 100,000 inhabitants between 23 January and 30 June. To the right of each chart are the infections per 100,000 inhabitants for the last 7 days of June in each country. Source: CaixaBank
    Forecasts for the medium-term trend in the tourism industry

    Making projections for 2020 is extremely complex due to the high uncertainty regarding how the pandemic will evolve. However, if we focus on the medium term, and assuming an effective vaccine or treatment for COVID-19 will have been discovered within this timescale, the upswing in international tourist confidence, the increased attractiveness of established, safe destinations during the early stages of the recovery and the rebound in the global economy all point to a considerably better outlook for Spain's tourism industry than for 2020.

    As the next chart shows, we predict a relatively rapid recovery in demand in the medium term. In 2021, international tourist expenditure would reach a level higher than the one achieved in 2016, albeit still far from its pre-crisis level. Nevertheless, the sector has enjoyed some extraordinary years, in 2019 beating all records in terms of tourist volumes and expenditure, so returning to the revenue levels of 2016 could be considered as very positive.

    International tourist expenditure in Spain

    Billion euros

    p 12
    Source: CaixaBank Research, based on data from the National Statistics Institute.

    In conclusion:

    • Tourism demand is going to plummet in 2020, mainly due to the loss of mobility of tourists between March and June.
    • Tourist expenditure will gradually pick up in the second half of the year, supported by domestic tourism and the arrival of international tourists from traditional outbound markets such as Germany and the UK.
    • The dependence of tourist flows on the health situation in Spain and in the countries of origin will be a source of uncertainty. Despite this, the medium-term outlook for the sector remains positive, thanks to the fact that its pre-crisis situation was very solid.

     

    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • Reactivating tourism business

    SpanishCatalan

    With the shock of the COVID-19 outbreak, tourism businesses reduced their activity, destroying a large number of jobs and taking massive advantage of Spain's furlough scheme (ERTE). Tourism supply is now attempting to revive itself. The lifting of mobility restrictions has encouraged a good number of tourist establishments to reopen their doors, even though demand is still low. With the start of the summer season, it is essential for the tourism sector to maintain, and benefit from, its commitment to reactivation as this is the only way to create jobs again.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Etiquetas
    Miniatura
    Área geográfica

    The slump in tourism demand between March and June was accompanied by the deactivation of a large number of tourism companies, which were forced to cease trading due to mobility restrictions and the impossibility of offering their services. According to data from the hotel occupancy survey, between March and May 2020 a monthly average of 4,100 hotel establishments remained open, 73% fewer than in the same period in 2019, a considerable reduction but somewhat less than the decline suffered by demand (over 90%). This is due to the fact that the sector has managed to reactivate slightly better than might be inferred from the demand figures. In May, 12% of the establishments that had been operating in February reopened their doors (mainly small establishments with low staffing needs), slightly ahead of demand due to an expected upturn in bookings.

    Analysing CaixaBank terminal payments to monitor the activity of the tourism supply in real time

    The complexity of the current situation is such that the surveys carried out by the INE, which are traditionally used to analyse the tourism supply in this report, provide us with much less information than in the past since the number of surveys carried out on open establishments is insufficient.1  Thanks to CaixaBank's use of big data, we have been able to overcome this problem by developing an indicator that enables us to monitor the levels of inactivity for tourism supply in real time. To do so, we use the share of retail businesses with a CaixaBank payment terminal that have stopped processing any payments. As can be seen in the chart, according to this indicator the sector almost totally closed down in the period between the declaration of the state of emergency and 24 May, the date that marked the beginning of phase 2 in some parts of Spain. Since then, the revival in supply has been gaining ground. At the end of June, and for the first time since March, the share of inactive tourism businesses was below 50%, coinciding with the end of the state of emergency and the opening up of borders with other EU countries.

    • 1. The INE has not published data at a regional level from its hotel occupancy survey due to the limited number of establishments surveyed in April and May. Neither have the hotel price index or profitability figures (ADR and RevPAR) been published.

    Share of hotels and travel agencies with no payments via their CaixaBank terminals

    % of total

    p 14
    Note: The series has been normalised so that the share of inactive businesses equals 0% in December 2019. Source: CaixaBank Research, based on internal data.

    Tourism supply is reviving in advance of demand, reacting positively to the prospects of a recovery and the relaxation of social distancing measures. From the limitation of capacity to 30% and the closure of shared areas in hotel establishments required in phase 1 of lifting the lockdown, in many cases the capacity limit has been raised to over 70% at present, enabling establishments to exceed the demand threshold and offset their costs.2 Even so, according to internal CaixaBank data, during the second week of July 31% of tourism establishments remained inactive and hotel payments were still down by about 65% year-on-year, suggesting that most operators have probably not reached breakeven point.

    • 2. At present, the autonomous regions are responsible for regulating social distancing measures so there are no common criteria regarding capacity limits for tourist and hotel establishments. It should be noted that, in the case of small commercial and hotel establishments, social distancing measures between customers entail more stringent constraints on capacity than those indicated.
    Reactivating the tourism industry: economic policies and adapting to the new demand

    Until this breakeven point is reached, it is important that economic policy measures continue to support the sector. The main support measures have been based on enabling temporary adjustments in the workforce by making the furlough scheme (ERTE) more flexible and also on providing liquidity to companies (100 billion euros with ICO guarantees for companies, with a tranche of 2.5 billion euros specifically for tourism companies), as well as a moratorium of up to 12 months on mortgage operations for properties linked to tourism business and taken out with credit institutions. All these measures, aimed at mitigating the impact of the coronavirus crisis, have been fundamental for tourism businesses to survive during the months
    of little or no demand.

    The sector will have to boost its transformation in order to adapt to the new parameters regarding health safety in the short term and to new demand requirements in the medium and long term.3 Indeed, the plan to reactivate tourism proposed by the government in mid-June contains measures along these lines, such as soft loans to finance sustainable solutions for tourism companies and investment in digital transformation. Expanding the role of public policy could therefore be a key lever to ensure tourism has the capacity to carry out these investments and maintain its levels of competitiveness.

    On the other hand, the reduction in foreign competition for tourism within a lower demand environment such as the present may also be vital to speeding up the sector's reactivation this summer. It should be noted that British and German tourists' perception of other Mediterranean markets, such as Turkey, Egypt, Tunisia and Morocco, improved in 2019, limiting the growth of Spain's international demand.4 However, the pandemic has meant that these markets are now notably limited in terms of European visitors,  not only because they are not members of the EU but also because the restrictions imposed by their governments are more severe than in the case of Spain and other Mediterranean EU member states. This can be seen in the following chart, based on the Oxford COVID-19 Government Response Tracker.

    • 3. See the article «The future awaiting global tourism» in this Report.
    • 4. See the article «The fight for international tourism in the Mediterranean» in the Tourism Sector Report for the 1st Semester of 2020, available at www.caixabankresearch.com

    Intensity of border restrictions

    p 15
    Source: CaixaBank Research, based on the Oxford COVID-19 Government Response Tracker.
    Employment in the tourism industry, the hardest hit by COVID-19

    The industry's reactivation is even more in the news, if possible, because of the impact it could have on employment. Spain's labour market has suffered a terrible shock. In June, the number of people registered as employed with Social Security stood at 18.6 million, 974,000 fewer than in June 2019 (–5% year-on-year), of which around 70% were temporary workers. In addition, 1.8 million employees were affected by furlough measures; i.e. they were still registered with the Social Security system and therefore did not count as unemployed but were either not working or at least not full-time.

    Employment in the tourism sector has been the hardest hit by the current situation. At the end of May, tourism-related employment stood at 2.5 million people, nearly 387,000 fewer than in the same month in 2019 (–13.5% year-on-year). This implies that 44% of the jobs lost in Spain were in the tourism sector. In addition, around 31% of tourism employees were furloughed while 5.5% took advantage of severance packages, well above the average for Spain in May, namely 9.8% furloughed and 2.0% being made redundant.

    Starting from such a low level of employment, and given the traditional weight of tourism jobs in the economy as a whole (12.8% of the registered workforce in 2019), the «reopening»  of the sector could have a substantial effect on employment and on moderating the number of jobs affected by the furlough scheme. Despite the fact that tourism jobs are highly seasonal throughout the year, a considerable amount of employment is generated by tourism at times of moderate demand. In other words, the bulk of the jobs are created when hotel establishments decide to open, even if the actual occupancy of the hotel is low. Logically, as the occupancy rate increases, so does the number of employees, but much more gradually. Specifically, according to our estimates, the basic staff of a hotel (those who do not depend on the occupancy rate) represent about 65% of the staff the hotel would employ if it were full. For example, an average Spanish hotel, which according to INE data consists of 49 rooms, would employ 17 workers with a 100% occupancy rate, while with a minimum occupancy rate of 35% it would employ 13. Although there is a substantial difference in employment between the high and low seasons, it should be noted that the hiring of most hotel staff is not so dependent on the seasonality of demand.

    In this respect, although Spain's average occupancy rate will remain limited for the rest of the year, a small improvement in the prospects of tourist arrivals could make all the difference in reactivating the sector and the labour market as a whole.

    Simulation of hotel staff hired by occupancy rate

    p 17
    Note: The sensitivity of the number of employees per hotel room to the different occupancy rates has been estimated using data from the survey «Encuesta de Ocupación Hotelera» for 106 municipalities between January 2005 and December 2019. Source: CaixaBa

    In conclusion:

    • Tourism supply is gradually being reactivated. The share of inactive tourism businesses went from 95% in mid-April to 31% in the second week of July.
    • Liquidity measures and temporary workforce adjustments have been and will continue to be fundamental for the tourism industry to overcome the slack period.
    • The «reopening» of tourist businesses could result in significant job creation and would considerably moderate the number of people furloughed.

     

    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • The loss of tourism business is a major blow for the Spanish economy

    SpanishCatalan

    The tourism industry is a key sector for Spain's economy and the decline forecast in tourism for 2020 will have a major impact on the country's level of economic activity. However, this economic impact will not be spread evenly throughout Spain as there are big differences between regions in the relative importance of the tourism sector. We expect the islands and Mediterranean communities to be more exposed than the average in Spain, while inland regions will suffer less.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Etiquetas
    Miniatura
    Área geográfica

    Much has been said during the current crisis about the importance of tourism for the Spanish economy and this is understandable, given that it is one of the economic sectors that will suffer the most from the consequences of the COVID-19 crisis. According to data from the tourism satellite account published by the INE, the industry generates 12.3% of Spain's GDP and 12.7% of its employment. Tourism's huge importance for the Spanish economy is not by chance but the result of its great competitiveness and resilience. However, in 2020 the sector lies at the epicentre of the crisis affecting the Spanish economy which, according to forecasts by CaixaBank Research, will see a fall in GDP of between 13% and 15%.

    Tourism-related GDP in Spain

    Index (100 = 2019)

    p 19
    Source: CaixaBank Research, based on data from the National Statistics Institute.
    The impact of the slump in tourism business on the Spanish economy

    Due to the sharp decline in tourism expenditure expected in 2020, which we estimate at around 50% for international tourism and about 30% for domestic, the sector will no longer produce a great deal of economic activity. Specifically, according to our forecasts, tourism-related GDP will fall by around 44% in 2020, severely affecting the Spanish economy. This drop in tourism business could directly deduct 3 pp from GDP growth. Furthermore, due to the sector's strong influence on the rest of the economy, an additional 1.6 pp to 2.3 pp could be lost indirectly.1 In this case, the tourism sector would contribute negatively to Spain's economic growth by between 4.6 pp and 5.3 pp of GDP.

    In the medium term, we expect tourism activity to return to its pre-crisis level from 2024 onwards. However, the activity level of 2017, a year which can be used as a benchmark given the good performance by tourism, could be regained as early as 2021.

    • 1. According to our estimates, for every 100 euros of added value generated directly by the tourism sector, 76 euros of indirect added value are generated in the rest of the economy, which means that around 40% of the economic activity created by the tourism sector is indirect.
    Analysis of the decline in tourism expenditure by autonomous region

    In regional terms, the economic impact of the drop in tourism business in 2020 will be highly heterogeneous and depend mainly on the relative importance of foreign tourism and also on the importance of the tourism sector in each region's economy.

    The following chart shows the projected variation in tourism expenditure by autonomous region for 2020. According to these estimates, the Balearic Islands will suffer the most from the drop in tourism expenditure (59%) due to their high dependence on foreign tourism (95% of expenditure) and also because a large part of their tourism demand (86% of the annual demand in 2019) is concentrated in the spring and summer months (those most affected by the COVID-19 pandemic). At the other end of the scale, Castilla-La Mancha and Aragon are the regions that will post the smallest decline in tourist expenditure due to their lower dependence on foreign tourism (14% and 24%, respectively). Obviously, these results depend considerably on how the pandemic evolves in the different regions.

    Drop in tourist expenditure in 2020 in the autonomous regions

    Annual change in % and contribution in percentage points

    p 20
    Fuente: CaixaBank Research.
    Analysis of the economic impact of the drop in tourism expenditure by autonomous region

    The sector's relative importance for the region's economy is also very relevant in order to understand the economic impact of the decline in tourism, this factor also varying greatly from region to region. Since we do not have estimates of tourism's contribution to GDP per region, we have used the share of tourism expenditure to GDP to obtain an approximate measure of the tourism sector's relative weight. Using this figure, we can see that tourism is comparatively unimportant in the regions of Navarra and La Rioja (around 4% of their GDP) while its consumption accounts for more than 40% of GDP in the island communities of the Balearics and Canaries.

    Map of the impact of the fall in tourist expenditure in 2020

    Fall in tourist expenditure by % of GDP

    p 21
    Source: CaixaBank Research, based on data from the National Statistics Institute.

    By combining the relative weight of tourism expenditure and our central forecast scenario for 2020, we can measure the economic impact on the autonomous regions, as seen in the map above. This shows how the slump in tourism business will be considerable in the Balearic Islands and Canary Islands, with declines in tourism expenditure representing 28% and 18% of their regional GDP, respectively. The Mediterranean communities of Catalonia, Valencia and Andalusia will see a more contained impact although still above the Spanish average, with a drop in tourism expenditure of more than 5% of GDP in all three cases. The Community of Madrid, the Region of Murcia, Cantabria and Galicia would register an average impact of between 2% and 4% of GDP while the rest of the autonomous regions would be less affected.

    In conclusion:

    • The tourism industry will be severely affected by the health crisis caused by COVID-19, resulting in a drop in tourism GDP of about 44% in 2020.
    • Because of tourism's prominent role in the Spanish economy, the impact of the crisis on the sector will weigh heavily on the national economy, whose growth will shrink by 5 pp this year.
    • The impact will vary according to the region in question, with the Balearic and Canary Islands and the Mediterranean coast being particularly affected.
    • Although uncertain, the outlook for 2021 points to a strong recovery in activity that could bring tourism GDP to levels similar to 2017.
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado
  • The future awaiting global tourism

    SpanishCatalan

    The coronavirus pandemic took the world by surprise and brought international tourism almost to a complete halt. The initial phases of a relative recovery are restoring connectivity between those outbound markets and tourist destinations that have controlled the spread of the coronavirus. However, the sector will have to undertake a far-reaching and rapid transformation to adapt to the new, post-COVID-19 international tourist who will demand more personalised, flexible and, above all, safer services.

    Plantilla

    plantilla_article_vs05

    Temática
    Pre Titulo
    Etiquetas
    Miniatura
    Área geográfica

    The outbreak of SARS-CoV-2 has been a global phenomenon. As of June, more than 10 million people had been infected and 500,000 had died as a result of COVID-19 worldwide. None of the 177 countries for which statistics are published by the Johns Hopkins University Coronavirus Research Center is virus-free and more than 25% of countries have a rate of over 1,000 cases per million people.1 This situation has led to unprecedented measures being taken to limit the international and domestic mobility of citizens around the world, causing the flow of international tourists to come to a standstill between March and June.

    The implications of this stoppage in tourism for the world economy are far-reaching. The World Tourism Organization (UNWTO) is considering three scenarios for 2020, depending on when global travel restrictions begin to be lifted. The less adverse and more likely scenario is a 58% drop in global tourism assuming that borders will gradually open up from July onwards, which is already happening. On the other hand, a more extreme scenario, in which border restrictions are not lifted until December, would cause a drop of up to 78%.2 Consequently, even in the least pessimistic scenario the world's number of tourists would fall to figures not seen since the last century, dealing a hefty blow to a sector that generates more than 10% of global GDP and nearly 12% of the world's employment.

    • 1. See the interactive dashboard produced by the Johns Hopkins University to consult COVID-19 data at https://systems.jhu.edu/
    • 2. See «UNWTO World Tourism Barometer (May 2020)».
    International tourism could shrink by 58%

    according to World Tourism Organization estimates, a hefty blow to a sector that generates more than 10% of global GDP and nearly 12% of the world's employment.

    A first step in understanding what the world's tourism will be like in the short term is to analyse population mobility indicators, a sine qua non for tourists to travel to their destination. Given that proximity to the tourist destination is going to be a fundamental aspect, we will look at the mobility situation within the main regions of the world: Europe, Asia and the Americas.

    p 23
    Europe: coordinated relaxation with good prospects

    In Europe, lockdown measures began in Italy on 7 March, when the government introduced restrictions on people's mobility, first in the Lombardy region and shortly afterwards throughout the country. Within a few weeks, the vast majority of European countries had already implemented similar measures and people's mobility on the continent was reduced to a bare minimum to ensure the supply of essential goods and services. Looking at the mobility indicators produced by Google from Google Maps application data, we can see that the lockdown measures were extraordinarily effective in Europe (see the chart below). In just 20 days, mobility in commercial establishments throughout Western Europe fell by around 80% (from –62% in Germany to –91% in Spain). Although this gradually recovered when the lockdown started to be lifted (which began in May in many EU countries), by the end of June it had still not regained pre-COVID-19 levels: in the UK, the country that is furthest behind in lifting the lockdown, mobility is still 50% lower, while in Germany, Italy and France mobility in commercial premises is «only» 20% below pre-COVID-19 levels.

    Community mobility regarding commercial premises

    Change with respect to the baseline* (%)

    p 23
    Note: Data based on 7-day average. (*) The baseline corresponds to the median mobility recorded on the same weekday between 3 January and 6 February. Source: CaixaBank Research, based on the Google Mobility Report.

    Once the recovery in domestic mobility was underway, as from the end of June Europe has focused on lifting restrictions to international tourism flows. Borders have gradually started to be reopened and the mandatory quarantine measures when entering the destination country are being withdrawn. This is a somewhat more complex and delicate process, since it depends on the COVID-19 situation both in the destination region and in the tourist's home region. Nevertheless, the prospects for a revival in domestic and international tourism flows on the continent appear relatively positive, in view of several factors. The first is that many of the southern EU countries, where most of the tourist destinations are located and where the coronavirus hit the hardest, have managed to control the spread of the virus after a very strict lockdown and some spikes which, at present, appear to be localised. Secondly, the outbound markets in northern Europe, with a few exceptions, seem to have been able to detect new outbreaks and are taking the necessary measures to allow their citizens to travel in a safe and controlled manner. Last but not least, in the case of reopening borders, the EU and the Schengen area are pushing for a degree of coordination between EU countries that is unknown in any other region of the world.

    The Schengen area

    has forced a high degree of coordination among EU countries that will be key to kickstarting tourism's recovery in Europe

    However, while the possibilities of connecting European tourists to a wide range of destinations within the EU seem favourable, there is still a long way to go. If we look at the following chart, with data on airport connectivity in Europe's main airports between 1 January and 30 June, we can see just how far off we are. Air mobility is currently 67% below the level observed between January and February, although slightly above the figure recorded in April when it was 92% below pre-COVID levels. In light of Europe's low international mobility, it is obviously early days yet for the recovery in tourism.

    Daily airport connections for the main airports of Europe

    Number of flights

    p 25
    Note: Flights departing from the airports of London (Heathrow), Paris (CDG), Frankfurt, Amsterdam, Madrid, Rome, Zurich and Moscow have been included. Source: CaixaBank Research, based on data from OpenSky Network.
    p 26
    Asia: the driving force of tourism is advancing at a slow pace

    Asia has often been used as an example when interpreting possible future scenarios for the tourism industry. This is hardly surprising as the region was responsible for 38% of global tourism expenditure in 2019 and received more than 360 million tourists a year (25% of the total). Moreover, some Asian countries are at a more mature stage in the pandemic, suggesting they might also be at a more advanced stage in the recovery. It should be noted that on 8 April the city of Wuhan, where the first outbreak of COVID-19 was detected, had just completed a 76-day lockdown. At that time, Europe was still immersed in its earliest and most severe stage of lockdown. However, there are some differences that have led to the timelines in Europe and Asia overlapping and prevent us from being able to make predictions based on the Asian experience.

    According to what can be observed from domestic mobility indicators, the reaction in South East Asia was, in general, more measured than in Europe although much more heterogeneous than on the Old Continent.3 Countries such as Hong Kong and South Korea took very early but less severe measures and saw the mobility of their populations reduced by just 30%. Singapore, until it suffered a spike in early April, had barely limited the mobility of its citizens at all. India, however, is a case apart, with a much later but much more intense reaction than that of South East Asia.

    Faced with this earlier but contained reaction, the Asian countries were better able to anticipate the health crisis and avoid overloading their healthcare systems, although they also delayed the time it took to control the spread of the coronavirus, to the point that, by the end of June, countries such as Hong Kong and Japan were at the same stage of lifting their lockdowns as Europe, with domestic tourism still in its early stages of recovery and restrictions on international arrivals.

    • 3. It is important to note that Google does not have mobility data for China because Google software is banned for Chinese devices, even though Android is the most widespread operating system.

    Community mobility regarding commercial premises

    Change with respect to the baseline* (%)

    p 25_1
    Note: Data based on 7-day average. (*) The baseline corresponds to the median mobility recorded on the same weekday between 3 January and 6 February. Source: CaixaBank Research, based on the Google Mobility Report.

    Daily airport connections for the main airports in South East Asia

    Number of flights    

    p 26
    Note: Flights departing from the airports of Hong Kong, Tokyo, Osaka, Seoul, Taipei, Singapore and Manila were included. Source: CaixaBank Research, based on data from OpenSky Network.
    The situation is still complex for Asia's tourism industry

    as restrictions are still in place on the entry of foreigners across the continent.

    As a result, the situation is still complex for Asia's tourism industry. Looking at the air mobility data shown in the chart above, we can see how the number of flights in the area at the end of June was down by almost 60%, albeit far from the minimums recorded during the second half of April. Despite this, restrictions on the entry of foreigners remained in place in June in all countries across the region, according to data from the International Air Transport Agency (IATA). As long as there is no clear coordination between countries for the controlled reopening of borders, as in the case of the EU, tourist flows are unlikely to resume in Asia.

    The Americas: a bad outlook for the world's latest COVID hotspot

    The health situation on the American continent is the most worrying. In the last month, 54% of new COVID-19 cases occurred in countries on the American continent. The number of positive cases in Brazil, Chile, Mexico, Colombia and Argentina tripled in June and doubled in the United States and Peru. In other words, the Americas have become the global hotspot for the pandemic. As can be seen in the following charts, the only country with a clear downward trend since May is Canada.

    Incidence of COVID-19 infections in the Americas

    Positive daily cases per 100,000 inhabitants

    p 28
    Note: The shaded areas reflect daily data while the lines reflect 7-day averages. Source: CaixaBank Research, based on data from Johns Hopkins University CRC.

    The most worrying aspect is that this complicated health situation has occurred in spite of reduced mobility. Although the measures applied by national governments have not been as far-reaching as in Europe and there was some delay to their implementation, according to domestic mobility indicators the population of Latin American countries is 50% less mobile than usual. Mobility has improved slightly in Canada and the US, although there are doubts regarding the sustainability of this trend in the latter given the extent of the second wave. Because of this situation, the continent's tourism sector has been at a standstill since mid-March, with air mobility falling by up to 63% compared with its pre-crisis level by the end of June.

    Community mobility regarding commercial premises

    Change with respect to the baseline* (%)

    p 29
    Note: Data based on 7-day average. (*) The baseline corresponds to the median mobility recorded on the same weekday between 3 January and 6 February. Source: CaixaBank Research, based on the Google Mobility Report.

    Daily airport connections for the main airports of America

    Number of flights   

    p 29
    Note: Flights departing from the airports of Atlanta, Los Angeles, San Francisco, New York (JFK), Toronto and São Paulo were included. Source: CaixaBank Research, based on data from OpenSky Network.
    The health crisis in many American countries

    makes it impossible for the tourism industry to recover at present.

    We can therefore state that the outlook for a recovery in American tourism is particularly bad. First and foremost, the region must undertake the necessary lockdown measures to tackle the health crisis. Only when the health situation is under control will mobility be able to recover enough to revive the tourism sector. However, what we have learned from the experience of Europe and Asia is that controlling the growth of infections is a slow process and we therefore expect a very late recovery for the region as a whole.

    p 29
    Post-COVID-19 global tourism: huge uncertainty and big changes in the medium term

    This situation has led the UNWTO to predict a fall in international tourist flows of over 58% in its forecasts for 2020. Despite this, and under the right conditions, once international mobility gains ground the recovery in global tourism is expected to be relatively rapid, albeit remaining significantly below 2019 levels next year. The UNWTO predicts the number of international tourists will go from nearly a 100% decrease during Q2 2020 to «just» 30% below pre-crisis levels by the beginning of 2021, thanks to the recovery of European and Asian regions. It is therefore important to focus on the medium term, on what analysts have come to call «post-COVID-19 tourism».

    It is unlikely that tourism will recover from the current situation without undergoing some major changes along the way. The biggest transformation, and probably the great driving force behind the renewal of the whole sector, will be how tourists want to travel. Before the sudden coronavirus outbreak, tourism demand was already showing signs of changing, albeit gradual. There was strong growth in the number of tourists choosing destinations with a higher quality supply and where a larger number of services were available, in addition to the emergence of ecologically-aware tourists who prefer sustainable, innovative destinations.

    The arrival of COVID-19 will accelerate changes that were already underway:

    quality and sustainability as the flagships for a new kind of tourism.

    The coronavirus will probably not change the direction of the trends we had already been observing but will help to speed them up considerably. Certain factors could be vital in understanding what the new post-COVID-19 tourism will be like:

    1. Avoiding crowds and sustainable destinations: it seems more evident than ever that sustainability will play a key role in the future. Just a few weeks at home have made it clear that the individual action of each of us has a great environmental impact, raising the awareness of a large proportion of society. With this change in attitude, destinations that can offer a sustainable, more personalised solution will most probably become more attractive to an increasingly important share of the demand. On the other hand, as long as there is no vaccine or effective treatment, tourists will prefer destinations where social distancing can be easily maintained over more crowded locations.

    2. Personalised services: Post-coronavirus tourists will appreciate being able to personalise their experience rather than the attractions of mass tourism. In other words, the added value of the tourist supply will become more important. Given this change, the winners will be those destinations focusing on smaller volume but offering unique experiences.

    3. Digitisation: Future tourists will be much more digital because today's society already is. We must not forget that we live in a world where the use of digital media has increased dramatically due to the need to stay connected at home, both for work and personal reasons. As a result, many citizens who previously had not mastered digital channels now appreciate them and are likely to demand them when travelling.

    4. Safety and health: Certainty has always been a very important factor when choosing a tourist venue and, after a shock like the coronavirus, accessibility to and the quality of the healthcare system will be factors to take into account when deciding on a location.

    5. Closeness and connectivity: This article has already mentioned that connectivity is a fundamental factor for tourism; an obvious but nonetheless vital fact. It is very likely that the first connectivity channels to be reactivated will be those of medium and short range. Until a vaccine is available, short-range tourism (domestic and nearby countries) will offer many more options for tourists and greater certainty should they want to return home. Similarly, those destinations that can offer a convenient connection could significantly improve their prospects.

    p 31

    The changes in the way tourism is carried out must be accompanied by an effort to transform the supply, which needs to focus on innovation and on offering a larger number of services, the expansion of less exploited destinations, an improvement in connectivity and, in short, something the sector itself has been focusing on for years: quality rather than quantity.4  This is therefore the right time to speed up the investments required to adapt the sector to this new global tourism market. Mobilisation of the sector's business community will be key, as will support from public administrations, not only to overcome this crisis but also to ensure the industry remains a sustainable pillar of our economy in the future.

    In conclusion, it is clear that the current situation is one of unprecedented complexity for the global tourism sector, both in the short and medium term. In 2020, global tourism demand is likely to be less than half of what it was in 2019 and will continue to be hugely dependent on the recovery of people's mobility and our ability to maintain a contained and controlled level of infection until an effective coronavirus vaccine or treatment is discovered. Given this situation, Europe can be seen as a pilot project for the revival of global tourism because it has succeeded in reactivating people's mobility and has embarked on the process of reopening borders. In the medium term, changes in society will speed up the trend towards new types of tourism. As a result, the supply will have to be adapted even more quickly than was already occurring towards a more sustainable, digital, safe and good quality tourism.

    • 4. See the «Tourism Sector Report. S2 2019» and the «Tourism Sector Report. 1S 2020» available at www.caixabankresearch.com.
    Destacado Economia y Mercados
    Desactivado
    Destacado Analisis Sectorial
    Desactivado
    Destacado Área Geográfica
    Desactivado

The COVID-19 outbreak boosts remote working

The health crisis brought about by COVID-19 has forced large parts of society to quickly and unexpectedly adapt to remote working, a relatively minority practice in Spain prior to the outbreak of the pandemic. Does Spain simply lack the potential to telework or, on the contrary, does it has the potential but fails to exploit it?

Content available in
Ana Brás
Lukas Schaefer
June 17th, 2020
Portátil y móviol
  • Remote working has revealed itself as an effective mechanism for maintaining employment from home and ensuring the continuity of economic activity in the context of the COVID-19 outbreak.
  • According to our estimates, 32.6% of all employees in Spain could potentially perform their work remotely.
  • The COVID-19 outbreak will penalise each economic sector to a greater or lesser extent depending on its ability to implement remote working.

The health crisis brought about by COVID-19 has forced large parts of society to quickly and unexpectedly adapt to remote working, a relatively minority practice in Spain prior to the outbreak of the pandemic. In 2019, only 8.3% of those in employment in Spain opted to work from home, be it regularly or occasionally. This figure is well below the EU average (16.1%) and the euro area’s leading economies in terms of remote working, such as the Netherlands (37.1%) and Luxembourg (33.1%).1 How should we interpret these differences? Does Spain simply lack the potential to telework or, on the contrary, does the country have the potential but fails to exploit it?

Is Spain prepared to telework?

The ease with which a worker can perform his or her duties from home depends on the requirements of his or her occupation. For example, a university professor can easily continue to teach his or her classes from home via video conferencing, whereas a waiter does not have the option of serving tables through digital platforms. In general, therefore, we must look at the tasks associated with each profession in order to assess whether it allows for the use of remote working. Dingel and Neiman (2020) propose a methodology according to which the potential to work from home in a given profession is determined by the type of activities performed and the context they are performed in.2 Specifically, they deem an occupation as feasible to be performed remotely if none of the associated tasks are classified as challenging to be reproduced from home.3

Dingel and Neiman estimate that 37% of employees in the US can perform their work from home. Based on their classifications and data from the labour force survey (LFS), we can reproduce their estimates for Spain.4 According to our calculations, 32.6% of all employees in Spain could potentially perform their work remotely.5 Generally speaking, the potential for working from home is somewhat higher for women and increases with age and education level.6

From a European perspective (see first chart), the average potential of the former EU-28 (37%) is somewhat higher than that of Spain, a result of the high capacity displayed in highly-advanced countries with respect to remote work, such as Luxembourg (53.4%), Sweden (44.2%) and the United Kingdom (43.5%). The country to country differences largely reflect disparities in the sectoral compositions of their economies. Economies with a greater relative weight of high-value-added services (such as information and communications or financial services) have a greater potential for remote working than countries where sectors such construction, tourism or retail prevail, since remote working is more difficult in the latter sectors due to their very nature.7

Following on from this, looking at the relationship between the potential for remote working and the potential economic impact of the COVID-19 pandemic is quite revealing. If we assume this impact to be the difference between the 2020 GDP growth forecasts published in October 2019 and in April 2020, we can see that those countries with a high capacity for teleworking appear to be least affected by the coronavirus shock (see second chart).8 While the economic consequences of the shock will undoubtedly depend on many variables, the potential of workers to perform their tasks from home is an important mechanism for mitigating the effects of the lockdown. Thus, the differences in the occupational and sectoral structure observed between different European countries will likely translate into a greater or lesser capacity to cope with the economic impact caused by social distancing measures.

To what extent has COVID-19 changedremote working habits?

As COVID-19 has spread and, as a result, lockdown measures have been tightened, companies have widely opted to employ remote working as a means by which to maintain employment and ensure the continuity of economic activity. The significant increase in the demand for tools that enable virtual communication is a clear sign of the substantial increase in teleworking since the state of alarm was declared. To name a few examples, daily users of Zoom (a software tool for conducting video calls and virtual meetings) have risen from 10 to 300 million in just five months; Google Meet and Microsoft Teams are among the five most downloaded applications in April and May, and Facebook has just launched its own video conferencing tool.

On the other hand, a survey conducted by the regional government of Valencia (Generalitat Valenciana) and a recent study by Eurofound offer a first indication of the magnitude of the current practice of teleworking in Spain. According to both analyses, since the lockdown measures were first imposed, around 30% of employees have been working remotely, a figure very close to the teleworking potential that we estimate for Spain.9 Likely, faced by the halt in economic activity due to the COVID-19 outbreak, firms and whole sectors have discovered capacities for remote working that have been left unexploited until just a few months ago.

Teleworking potential and economic exposure to the COVID-19 outbreak by sector

Since remote working is an effective mechanism to mitigate the effects of the lockdown, the COVID-19 outbreak is penalising each economic sector to a greater or lesser extent depending on its ability to implement working from home.10 As can be seen in the third chart, those sectors that suffered the largest economic impact of the COVID-19 outbreak in the closing weeks of March are characterised by a lower potential for remote working. By contrast, real estate, telecommunications and financial services possess a greater potential for remote working and have managed to maintain a higher degree of activity.

On the other hand, within each sector there are occupations that have a greater potential than others for performing tasks from home. For instance, in the field of scientific and technical activities, we estimate that university professors can do 98% of their work from home, while the figure is only 34% for physics and engineering technicians. Therefore, the relative distribution among occupations within each sector has a decisive impact on the sectors’ overall potential.

Moving towards a future in which teleworking will become a common practice

Remote working has revealed itself as a fundamental component of economic activity, given the situation we are currently experiencing. Those companies that are able to successfully implement its practice are able to sustain their productive capacity more firmly. In other cases, the potential exists, but investment in the necessary digital capital is required (such as business infrastructures and mobile devices that allow for internet connections), as well as in human capital (staff training in the use of digital tools). After the coronavirus crisis, companies are likely to redouble their efforts in the field of digital transformation, which could facilitate the continued growth of remote working. Furthermore, what we have learnt during the long weeks of lockdown will likely facilitate the implementation process.

In this regard, the benefits of working from home can go far beyond the coronavirus crisis. An increase in remote working could facilitate more flexible working conditions, which would give people the opportunity to find a better balance between their working and family lives, or the possibility to live in areas further away from large cities. In other words, as briefly discussed in the Dossier of this same Monthly Report, simple measures such as the application of teleworking could bring about a better quality of life, as well as less congested and cleaner cities.

1. Data from the 2019 EU Labour Force Survey. The figures shown reflect the percentage of workers who indicate that they either regularly or occasionally work from home.

2. See I. Dingel and B. Neiman (2020) «How many jobs can be done at home» (http://www.nber.org/papers/w26948).

3. Dingel and Neiman (2020) use data from the O*NET survey, which provides detailed information on the work context and generic activities performed in each occupation.

4. Based on their classification for US occupations, we convert their data to the European system (ISCO-08) and aggregate them at a three-digit level, taking into account occupational shares. This conversion implicitly assumes that the tasks of each occupation are carried out in the same way in both Spain and the US.

5. Similar studies have been published both by the Bank of Spain (30.6%), and by Juan César Palomino, Juan Gabriel Rodríguez and Raquel Sebastián (33%). The small differences are the result of slightly different methodologies and data from different periods.

6. The potential for remote working by age range is 22% (15-24 years), 33% (25-44 years), 32% (45-64 years) and 38% (65 years or older). By education level, it is 11.1% (those with lower secondary school studies), 23.5% (upper secondary level studies) and 51.2% (university graduates and above).

7. Specifically, the two sectors with the greatest potential for remote working – information and communications, and financial and insurance activities (both 80%) – together contribute almost twice as much to the UK’s GDP (12.5%) as they do to Spain’s GDP (6.7%). This puts the UK in a better position to benefit from remote working.

8. IMF. «World Economic Outlook» of October 2019 and April 2020.

9. The sample by the Generalitat Valenciana includes only those people who have gone to work since 1 March. Specifically, the percentage fell from 36.9% in the first edition (29 March) to 18.9% in the most recent one (14 May). For the Eurofound study, see «Work, teleworking and COVID-19». The publication of the labour force survey for Q2 2020 will provide more detailed information on the spread of remote working in Spain in recent months.

10. We classify sectors according to the magnitude of the shock they have suffered. In particular, we estimate the deviation of the gross value added (GVA) for each sector in Q1 2020 from that which would have been expected in the absence of COVID-19. In order to project the GVA that «would have been expected», we assume that its growth in Q1 2020 would have been equal to the average quarter-on-quarter change exhibited in 2019.

Ana Brás
Lukas Schaefer
    im06-20_ee_f4_01_en.png
    im06-20_ee_f4_02_en.png
    im06-20_ee_f4_03_en.png