• Evolución de la desigualdad en tiempo real y efectividad del estado del bienestar para amortiguar el impacto de la crisis


    Oriol Aspachs (CaixaBank Research), Ruben Durante (ICREA-UPF, IPEG y Barcelona GSE), Alberto Graziano (CaixaBank Research), Josep Mestres (CaixaBank Research), Jose G. Montalvo (UPF, IPEG y Barcelona GSE) y Marta Reynal-Querol (ICREA-UPF, IPEG y Barcelona GSE).

    Oriol Aspachs
    Alberto Graziano
    Josep Mestres Domènech
  • Oriol Aspachs
    Ruben Durante
    Alberto Graziano
    Josep Mestres Domènech
    Jose G. Montalvo
    Marta Reynal-Querol
  • The Recovery Plan for Europe: a green wave for the real estate sector


    Europe’s economic response to the COVID-19 crisis took shape in July: the European Council approved the Recovery Plan for Europe, the so-called NGEU, via which the European Union will grant up to 750 billion euros to its member states to stimulate their economic recovery after the shock of the pandemic. This is an unprecedented agreement and it could have a considerable impact on Europe’s real estate sector since one of the EU’s main goals, to which this Recovery Plan aims to contribute significantly, is to reduce greenhouse gas emissions by 55% by 2030 compared with 1990 levels. It is clear that renovating Europe’s buildings, which are responsible for 40% of the continent’s energy consumption, will be key to achieving this climate target.



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    Área geográfica
    How the Recovery Plan works and the climate challenge

    Between 2021 and 2026, the main component of the NGEU, the Recovery and Resilience Facility, will allocate up to 312.5 billion euros via grants and 360 billion in loans to member states, depending on their size and how severely they have been affected by the COVID-19 crisis. According to the European Commission’s own estimates, Spain and Italy may receive around 60 billion euros (4.8% and 3.7% of their GDP, respectively)1 from the Facility; France, approximately 30 billion (1.3% of GDP); Portugal, 13 billion (6.2% of GDP) and Germany around 20 billion (0.6% of GDP). To access these funds, EU countries must draw up National Recovery and Resilience Plans and specify both the investment projects they will finance with the funds and the reforms accompanying them. These projects and reforms should contribute to four general goals: i) Promote economic, social and territorial cohesion in the European Union, ii) Strengthen economic and social resilience, iii) Mitigate the social and economic impact of this crisis, and iv) Support ecological and digital transition. In addition, each recovery and resilience plan should also allocate a minimum of 37% of its expenditure to climate-related aspects.2

    • 1. The 72 billion euros that Spain expects to receive from the EU includes 12.5 billion from the REACT-EU fund.
    • 2. For more details, see the article «Everything you ever wanted to know about the European Recovery Plan but were afraid to ask», available at: https://www.caixabankresearch.com/en/economics-markets/public-sector/everything-you-ever-wanted-know-about-european-recovery-plan-were?987=
    Europe’s NGEU Recovery Fund has a large amount of funding

    and could be an important means of renovating Europe’s buildings, a sine qua non for achieving the agreed emission targets.

    Renovating Europe’s buildings: a key goal

    The European Commission has identified the renovation of Europe’s buildings as one of its priorities for the ecological transition. More than 200 million buildings, representing 85% of Europe’s total, were built before 2001 and most of them are not energy efficient. The following chart shows that in many countries, especially Spain, there is still much work to be done to improve the average energy efficiency of housing. The current renovation rate is too slow to meet the target of reducing emissions by 55% by 2030. According to the Commission, around 90 billion euros per year of European private and public investment is required to achieve the target renovation rate.

    Share of housing by efficiency rating

    Percentage of national housing by EPC efficiency rating (%)

    p 18

    In view of this situation, the European Commission recommends that renovating housing be one of the priorities of the national recovery and resilience plans. Such renovations could simultaneously help to achieve the two European goals of ecological transition and digitalisation of the economy, for instance through "smart" buildings that are more energy efficient and can even produce their own energy.

    p 19

    As a result, Germany, France and Spain have already announced a number of renovation projects which they hope to finance via European funding. In Germany, the government has stated that it would increase funding for its energy renovation programme for buildings from the initial 1.5 billion to 2.5 billion euros, and has also announced the creation of a new 2 billion euro programme to adapt municipal buildings applying climate-friendly criteria. France’s Plan de Relance includes 6.7 billion euros between 2021 and 2022 to renovate private housing, SME premises, public buildings and social housing.

    The following article looks at how Spain will use these European funds to finance a drive to renovate its buildings.

    Destacado Economia y Mercados
    Destacado Analisis Sectorial
    Destacado Área Geográfica
  • NGEU: an opportunity to relaunch Spain’s real estate sector


    The Recovery, Transformation and Resilience Plan (PRTR) for the Spanish economy could be an important catalyst for the real estate sector. With the help of European funds, the government plans to recondition half a million homes between 2021 and 2023, with the aim of improving their energy efficiency and thereby helping to achieve the agreed decarbonisation targets. The General State Budget (PGE) also proposes a notable increase in the funds allocated to increase the amount of rented social housing, a policy that is crucial as rents have become even less affordable for the most vulnerable members of the population.



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    Área geográfica
    Next Generation EU: a historic opportunity for the Spanish economy

    The European Recovery Fund (Next Generation EU) represents a unique opportunity to modernise the Spanish economy and boost its growth potential. Spain will receive 72 billion euros in non-refundable transfers (grants) between 2021 and 2026, equivalent to 5.8% of its GDP in 2019.1 Although the first instalment from the European Commission is not expected until mid-2021,2 the government plans to advance funds to speed up investments and expects to spend over 26 billion euros in 2021, according to the preliminary proposal for the General State Budget. As we shall see, a significant proportion of these funds will be used to support the real estate sector’s ecological and digital transition.

    • 1. This amount could total 140 billion euros if loans are included. For more details, see «Next Generation EU: a golden opportunity for the Spanish economy», available at: https://www.caixabankresearch.com/en/economics-markets/public-sector/next-generation-eu-golden-opportunity-spanish-economy?index=
    • 2. The EU is expected to pay out the first tranche of the funds, 6.4 billion euros, in Q3 2021.
    NGEU and the Spain’s Budget for 2021: a significant amount allocated for housing policies

    In the area of housing, the Recovery, Transformation and Resilience Plan presented by the Spanish government to channel European NGEU3 funds focuses especially on the plan to renovate housing and urban regeneration. This policy is well aligned with the goals set by the Commission as renovating Europe’s buildings is one of its key priorities.4 The PRTR emphasises the importance of improving housing quality and boosting the construction industry both sustainably (by increasing energy efficiency, promoting green infrastructure and deploying solar roofs) and digitally (through smart applications in buildings). Specifically, the PRTR plans to recondition 500,000 homes between 2021 and 2023. This is an ambitious target which, if achieved, would be very positive for the sector as well as for the environment given the current state of housing, as we will see below.

    • 3. In October, the government presented an outline of the Plan with the main proposals. The final plan must be submitted to the European Commission by 30 April 2021 and is expected to be approved by the European Council in June 2021.
    • 4. See the article «The Recovery Plan for Europe: a green wave for the real estate sector»" in this Sector Report.
    About 6% of the European NGEU funds

    will be allocated to renovating housing, tripling public investment in this area.

    According to the Ministry of Territorial Policy, 4.5 billion euros of the NGEU (6.25% of all transfers) will be allocated to renovating housing over the next few years. In 2021, as stated in the PGE, around 1.65 billion euros will be channelled from the NGEU to finance housing and development policies. If this comes about, the amount alone would represent more than three times the housing items included in the country’s budgets on average over the past five years, ranging from 460 to 510 million euros per year. Furthermore, this amount represents 73% of the total allocation in the 2021 Budget for housing policies (2,253 million euros) and 6.2% of the aforementioned 26,634 million euros of the European NGEU funds that are expected to be paid out in 2021.

    The 2021 General State Budget allocates 2,253 million euros for housing,

    of which 1,651 million euros come from the European funds and will be used to recondition housing, while 569 million euros will be invested in social housing policies.

    p 22

    The 1.65 billion euros from the NGEU funds in 2021 will be used by three programmes: one to renovate residential environments (housing and neighbourhoods), managed mainly by the autonomous regions via agreements and totalling 1.55 billion euros; another focusing on the digital and sustainable reconditioning of public buildings, worth 81 million, and another programme with a budget of 20 million to renew the country’s architectural heritage. Consequently, although European funds will not directly finance social housing programmes, they will enable funds to be released and thereby increase the budget for this area in the 2021 General State Budget: the total allocation of 2,253 million euros for housing includes 569 million euros for social housing, 20% more than in previous budgets. This allocation will be used mainly to subsidise rent for vulnerable households and for the plan to provide 20,000 homes under the social rent scheme.

    The PGE includes 500 million euros from the NGEU funds for the circular economy, which should help to improve the efficient use of resources as well as the competitiveness of various strategic sectors. However, details of whether some of this budget will be devoted specifically to the construction industry have not been disclosed.

    The state of housing in Spain: old and not very energy efficient

    The plan to renovate housing is a unique opportunity to promote the decarbonisation of the real estate sector but also to alleviate some of the problems faced by housing at present. Especially, in addition to the age of housing (50% of homes in Spain are 40 years old or more), there is also a great deal of variability regarding their characteristics and performance in terms of energy efficiency, habitability and access.

    Spain’s housing tends to be old

    and much of it was built with little attention paid to energy efficiency

    In some cases these differences are the result of the technical regulations in force at the time they were built. For example, and as the following chart shows, half of Spain’s housing was built before the first basic building regulations came into force in 1980. In other words, around 12.8 million homes were built according to standards that regulated the safety of the structure but did not consider issues related to thermal insulation or energy consumption.5 Likewise, an additional 44% of homes (some 11.4 million) were built between 1981 and 2007, before the First Technical Building Code came into force which established minimum requirements for safety, habitability and energy efficiency.6 The result is that Spanish homes are largely inefficient from an energy point of view and require a thorough renovation to meet the greenhouse gas reduction targets the country has undertaken to achieve.

    • 5. From 1960 onwards, several provincial ordinances were introduced which regulated the thermal insulation of social housing, albeit to a limited extent.
    • 6. However, as they were built after the Basic Building Regulations CT/79, these homes have a certain degree of thermal insulation (façades and roofs), which guarantees a minimum of thermal comfort. In addition, this period saw an increasing use of aluminium and double glazing in both doors and windows, also helping to improve a home’s thermal insulation.

    Segmentation of housing in Spain according to year of construction and technical regulations

    Last actualization: 23 December 2020 - 08:51

    Part of Spain’s housing also suffers from various problems related to its habitability and quality. One of these problems is the small size of some housing. Specifically, 13% of homes in Spain are less than 60 m2 in size, while 46% are between 61 m2 and 90 m2. Renovation aimed at improving the use of space (such as enclosing terraces) can be of great help in increasing the net surface area of such homes.

    Another problem that affects some housing is its poor state of conservation. Specifically, nearly 1.8 million homes in Spain (7% of the total) are in a state of repair that can be classed as dilapidated, bad or deficient,7 placing Spain slightly below the EU average in relative terms: 15% of Spain’s population lives in a property with conservation problems compared with 13% in the EU.8

    Architectural barriers and poor means of access, which affects 13.2% of the residential stock, are other major shortcomings of housing in Spain. About 3.4 million homes are in buildings of four storeys or more without a lift.

    • 7. Data from the last housing census (2011).
    • 8. Eurostat data.
    Energy consumption in the residential sector: we’re not so bad

    Partly due to the climate, the energy demand of Spain’s residential sector is lower than that of the EU, both in absolute9 and relative terms.10 This lower energy consumption necessarily results in a lower savings potential than in other European countries. This is an important aspect, since one of the arguments in favour of energy reconditioning is that future energy savings (especially in HVAC) can be higher than the cost of the investment/work carried out.11

    If we look at how the energy consumed by Spanish households is used, most is for heating (see the chart below). However, Spain’s share of energy consumption is much lower than that of the EU: 42% in Spain compared with 64% in the EU.12

    Lighting and household appliances also account for a large part of the energy consumed by households, but in this case the proportion of energy consumed is higher than in the EU: 14% in the EU compared with 32% in Spain. This is important, since households have more and more equipment and appliances, so these need to be increasingly energy efficient to avoid a parallel increase in electricity consumption.

    • 9. The average annual consumption per household in Spain is 9,224.1 KWh per dwelling, while the average consumption in the EU is 16,526 KWh per dwelling. A similar conclusion is reached when we compare the energy consumption in residential buildings per m2.
    • 10. The residential sector accounts for approximately 17% of energy consumption in Spain compared with 26% in the EU, according to data from IDAE-MITECO (2018).
    • 11. Another aspect that may make it difficult to capitalise on energy savings within a reasonable period of time is the energy tariff structure, which in Spain consists of a high proportion of fixed costs related to the power under contract and taxes.
    • 12. The unit consumption per m2 for heating is also much lower than in the EU.

    Final energy consumption of the Spanish residential sector broken down by use (2018)

    Last actualization: 23 December 2020 - 08:53
    The reconditioning of housing gets a boost from European funds

    As already mentioned, the Recovery, Transformation and Resilience Plan for the Spanish economy proposes to recondition 500,000 homes between 2021 and 2023. This provides a significant boost for the goals set out in the National Integrated Energy and Climate Plan (PNIEC 2021-2030),13 which includes the renovation of the thermal envelope (façades and roofs) of 1,200,000 homes by 2030, starting with 30,000 homes per year in 2021 and ending with 300,000 homes per year in 2030.14

    • 13. The National Integrated Energy and Climate Plan (PNIEC 2021-2030) is a strategic document drawn up by the government (at the request of the EU) which sets out the strategy for decarbonising the Spanish economy.
    • 14. The PNIEC also proposes the renovation of heating and hot water installations in an average of 300,000 homes per year.
    European funds will support the renovation of Spanish housing

    but there are certain limitations that may hinder the rate proposed.

    The European funds should therefore considerably help to speed up the rate at which Spanish housing is renovated. However, there are certain aspects that could hinder the plan’s complete implementation. Firstly, the ambition of the Recovery, Transformation and Resilience Plan contrasts with the current rate of housing renovation (close to 25,000 homes per year); in fact, achieving the target of 500,000 homes in three years entails multiplying the current rate of renovation by six by 2023.

    Secondly, the investment to improve the energy efficiency of housing ranges from 5,000 to 10,000 euros for the building’s envelope and from 12,000 to 40,000 euros for complete projects,15 a high cost for many households. It will be crucial for renovation support to also reach the hardest hit and most vulnerable households, as well as zones with the greatest needs in terms of reconditioning.

    Thirdly, in general the population is relatively unwilling to carry out building work. According to the Housing Barometer (CIS, 2018), 87% of those surveyed did not plan to carry out any improvements or reforms to their homes in the following year (most because they did not think their homes needed them). Moreover, among those who did plan to carry out work, decorative reforms (such as in the kitchen or bathroom) were clearly prioritised over those related to energy efficiency (such as replacing doors and windows).

    We should also note the predominant type of housing in Spain, mostly multi-family buildings of three or more storeys, these accounting for 67% of the total housing. It tends to be more difficult to make decisions in communities of several owners and this can present an additional barrier to some of the work required being carried out.

    And, finally, the extent of public concern or awareness regarding energy efficiency is relatively lower than other housing-related issues. According to the latest housing barometer (CIS, 2018), concern about thermal comfort (35%) is similar to other concerns such as noise and security against burglary, and lower than other issues such as the lack
    of a lift in some buildings.

    • 15. Includes changing HVAC and hot water installations. Estimates from the «Estrategia a largo plazo para la rehabilitación energética en el sector de la edificación en España», Ministry of Economy (2020).

    Percentage of households that are little or not at all satisfied with the following aspects of the building in which their home is located

    Last actualization: 23 December 2020 - 08:54

    In short, the reconditioning of housing is key to reducing energy consumption and thereby greenhouse gas emissions. However, in order to encourage such building works, it is also important to convince people that renovating their dwelling is a great opportunity to improve the comfort and interior habitability of their homes (an issue that lockdown has made even more evident), as well as to increase the property’s value. It is therefore essential to direct the available public resources appropriately in order to address the main problems of Spain’s housing together with its citizens.

    p 27
    Social housing for rent: the big task ahead

    In addition to renovation, another priority for housing policy over the coming years is to increase the amount of public housing aimed at social or affordable rents. Spain is one of the European countries with the highest percentage of tenants who spend more than 40% of their income on rent, a sign of the extra effort many households have to make to meet their housing costs. This extra effort is also disproportionately high for low-income households and young people. Moreover, the coronavirus crisis has aggravated the existing problems of affordable rented accommodation, especially among the most vulnerable people, as pointed out by the International Monetary Fund (IMF) in its latest report on the Spanish economy.16 The IMF recommends increasing the number of homes allocated for social rented accommodation as Spain has one of the lowest figures in Europe: social housing accounts for 2.5% of the total number of primary residences in Spain compared with a European average of 9.3%, according to Eurostat data. To reach the European average, 1.2 million additional social housing units would be needed, a figure that would be difficult to achieve without public-private partnerships.

    • 16. IMF Country Report no. 20/299. Spain. Selected Issues. Available at https://www.imf.org/-/media/Files/Publications/CR/2020/English/ 1ESPEA2020002.ashx
    In the past 4 decades, almost 2.4 million social dwellings have been built in Spain,

    most of them intended for ownership, not rent. As a result, there is very little rented social housing, approximately 290,000 homes.

    This lack of rented social housing is the result of housing policies that have historically been aimed at developing social housing via ownership. Between 1981 and 2019, almost 11 million homes were completed in Spain, 21.6% of which were social housing. During this same period, households grew by just under 8 million, so we can conclude that social housing has covered the accommodation needs of approximately 30% of Spanish households in the past four decades, a highly significant figure. However, most of the social housing built in Spain has been destined for ownership (see the chart below). Consequently, after a few years these properties have now acquired the status of free housing on the market, thereby losing their original social purpose.

    The development of social housing for rent has been very limited in Spain

    Last actualization: 23 December 2020 - 11:36

    Very little social housing has been developed since 2010, affecting rented accommodation to a greater extent. In fact, between 2013 and 2016 the development of this kind of property has been almost zero (368 homes per year on average), increasing the prevalence of social housing under ownership. However, since 2017 rental accommodation seems to have regained some of its relative weight. Specifically, 12,496 social homes were built in Spain in 2019, of which 2,585 (20.7%) were for rent. Nevertheless, these figures are clearly not enough to significantly increase the stock of rented social housing.

    According to recent estimates by the Ministry of Transport, Mobility and Urban Agenda,17 Spain’s stock of publicly-owned social housing for rent totals about 290,000 homes. Of these, around 180,000 are owned by the autonomous region and 110,000 by the local council. These 290,000 rented social homes cover 1.6% of the 18.6 million households in Spain (data from the «Cuestionario sobre vivienda social», 2019).

    • 17. «Boletín especial vivienda social», 2020, Ministry of Transport, Mobility and Urban Agenda.
    Final points

    The European funds represent a historic opportunity to recondition Spain’s old, poorly energy-efficient housing, renovations that will also contribute, simultaneously, to the two European goals of ecological transition and digitalisation of the economy, for instance through more energy-efficient «smart» buildings. Similarly, the strong economic and social impact of the COVID-19 crisis has highlighted the need to create a large amount of public housing available for rent in order to resolve the current shortage and be able to provide a housing solution for the most vulnerable in society. These policies should drive a green, social and digital recovery.

    Destacado Economia y Mercados
    Destacado Analisis Sectorial
    Destacado Área Geográfica

The COVID-19 Crisis: an unprecedented shock

Content available in
Àlex Ruiz
April 15th, 2020


The global spread of the coronavirus is having a devastating human toll and will represent an unprecedented shock for the world’s economy, temporarily plunging it into recession. However, once the much needed pandemic containment measures are withdrawn, a rapid recovery should follow. To ensure a rapid normalisation of economic activity, we are confident the governments of the main countries will take the necessary steps to ensure the impact of COVID-19 on the economy quickly peters out once the pandemic is over. The response they are already making is along the right lines, although further action is likely to be needed both at a national and, above all, European level. We must not make the same mistakes as last time: it is essential, and urgent, to move decisively towards a fiscal union. The action taken by central banks will also be crucial. The ECB and the Fed have already announced massive injections of liquidity, and they will also purchase large amounts of public debt, which will help to finance public deficits. If the measures taken are sufficiently ambitious and effective, the rise in public deficits will be considerable this year but the spike will be temporary; 2021 should see a strong recovery in activity and public debt should resume the downward trend observed in recent years.

A global shock of the first degree

Although uncertainty is very high, given that the modern era has seen no comparable situation, the global coronavirus pandemic will most probably end up having economic consequences of an unprecedented scale in the short term, as suggested by the few indicators published since the start of the pandemic. In China, where the outbreak began, radical containment measures were applied and have seen success after two months, although the rate of activity has also been severely affected. Chinese GDP is estimated to have fallen by around 10% in the first quarter compared to the previous quarter (a figure that is not annualised). As China was the first country to be affected, we should take this data as an indication of what may happen in the rest of the economies.

Of course, how severely the virus will affect each country will depend on many factors, such as its health system, its own particular demographics (a young society in an emerging country is not the same as a country with an older population), its geographical structure (countries with a high urban density versus others that are less urbanised) or its degree of development.

But the pandemic’s evolution to date suggests that no country will escape being directly affected. Moreover, all economies are exposed, to a greater or lesser extent, to the slump in global demand, which began to be felt in China at the beginning of the year in the wake of the pandemic and will intensify in the coming months as it spreads to the rest of the world. Nor will any economy be able to emerge unscathed from the disruptions experienced by global supply chains, as well as from the restrictions imposed on people’s movements internationally. In addition to all this is the deterioration in the financial environment, which is reflected in the historic losses posted in recent weeks by all the world’s stock markets.

We are clearly going through the second great economic and financial crisis of the 21st century. However, unlike the Great Recession of 2008, decision-making is now proceeding much faster. Generally speaking (at least in the world’s leading economies), the foundations are being laid for an exceptional response.

Extraordinary measures are underway

Measures are already being implemented apace, in the area of public health as well as those of a strictly economic nature. Both are necessarily related. The actions being taken globally in the first of these two areas are focusing on containing the spread of the coronavirus (through more or less restrictive forms of social distancing) in order to flatten the curve of contagion and thereby minimise pressure on countries’ healthcare systems. This strategy, first implemented in China, will probably become widespread, to a greater or lesser extent, in practically all the world’s countries, leading to a global supply and demand shock.

To cope with this double shock, a battery of economic measures of extraordinary breadth and depth is being rapidly deployed. Albeit with variations, the measures being implemented share the same overall goal: to prevent a temporary shock from having any long-lasting negative effects.

With this aim, action is being taken mainly in two broad areas. Firstly, the major central banks and fiscal authorities are taking measures to provide all segments of the economic system with enough liquidity, prevent financial stress and thereby ensure the payments system continues to operate as it should. In many countries, and in particular in the US and EU, expansive monetary measures (QE) have been reintroduced, in the US the benchmark interest rates have been significantly lowered, private credit guarantee schemes have been introduced, taxes have been deferred and social transfers and benefits have been brought forward or made more flexible. At present, the solvency and liquidity position of banks is strong and they are expected to play an important role in passing on these policies aimed at meeting the financing needs of businesses and households.

A second line of action aims to mitigate the impact on employees and the self-employed. In this key area, the measures taken in many countries focus on allowing a temporary adjustment of employment levels without permanently destroying jobs, for instance by making temporary redundancy measures easier to implement (such as the ERTE in Spain). On the one hand, these help companies to cope with the shock whilst also strengthening the link between firms and their employees, essential for a rapid return to normality once the current situation has been overcome. Similarly, the requirements to be entitled to social benefits related to unemployment (in the case of employees) or a reduction in activity (for the self-employed) have been reduced to minimise the disruption to people’s incomes.

The ultimate goal is to safeguard, as far as possible, the economic well-being of the population and also the production capacity. Therefore, in addition to these measures, and depending on how much the COVID-19 will eventually impact economic activity, it is likely that supportive measures will have to be further adapted or extended, for instance through direct public aid or tax incentives for the hardest hit groups. The US has already announced a comprehensive package of measures in this respect.

All these measures will substantially increase public sector borrowing. For this reason, and to remove any doubt about the sustainability of public debt, central banks, and in particular the Fed and the ECB, have activated massive asset purchase programmes that implicitly cover the higher financing needs of the public sector.

Economic scenario

In the scenarios below, produced with unusual levels of uncertainty, there is a palpable belief that the measures being taken are necessary, ambitious and appropriate, so that the recession will be very severe but not long-lasting.

Specifically, we already expect a hugely negative impact on the rate of activity in the short term, depending on the country, in the first or second quarter of this year and then a rebound, also strong, in the second half of 2020 and in 2021. Consequently, globally we expect activity to fall by 0.4% in 2020, so the impact of the coronavirus on this year’s growth will be around 3.5 pp, but by 2021 we expect growth to recover and exceed 5%. By comparison, during the Great Recession, GDP fell by 0.1% in 2009 and recovered strongly the following year, posting 5.4% growth.

At a European level, we believe the euro area is entering a brief but severe recession on the first half of this year, with a widespread decline by country that will leave growth for 2020 as a whole at –3.1%. However, the recovery, which we expect to start as early as the second half of this year, will culminate in strong growth in 2021, which could exceed 4%.

The Spanish economy will most likely follow a pattern similar to Europe as a whole. We estimate the fall in GDP in the first half of the year may exceed 10%, mainly due to the slowdown in activity that will be experienced by those sectors directly affected by the containment measures, such as the restaurant and hotel industry, commerce, leisure and transport, among others, accounting for around 25% of Spain’s GDP. The impact on most other sectors will also play a role. The profound effect of the measures taken to date can already be seen in the turnover of CaixaBank POS terminals. In the third week of March (the week following the declaration of the state of emergency), these recorded a 55% drop year-on-year in card expenditure among residents (despite the notable upturn in spending on food and basic necessities) and 84% in spending by foreign tourists. In any case, once the pandemic is over, we are confident the measures taken by the authorities (which should be extended, if necessary) will stimulate a rapid economic recovery during the second half of the year, so that GDP growth for 2020 as a whole could end up being around –3.6% (5.1 pp less than we expected before the shock), and it may exceed 5.5% in 2021.

Given this situation, the unemployment rate is expected to rise sharply to over 20% in the second quarter, then fall rapidly in the second half of the year in line with the recovery in economic activity, to around 14.5% in the fourth quarter. As in the other major European economies, we expect the necessary fiscal stimulus measures will push up the public deficit, which this year could rise above 5%, as well as public debt, which might reach 105% of GDP. We insist, however, that, given the situation, effective and ambitious action is recommended in order to minimise the impact of the pandemic on households and businesses. By ensuring the foundations of the recovery are strong now, we also reduce the likelihood of public sector spending increasing in the future.

The uncertainty surrounding this scenario is unusually high. Ultimately, the impact of COVID-19 on the economy will depend, above all, on how long the strategies implemented to contain the virus are kept in place. If, finally, these are required longer than expected, the economic impact could be greater. For example, if containment measures have to be extended until the summer, or very gradually withdrawn, the drop in GDP could be around 7% this year in many developed countries. Nevertheless, the support measures for households and businesses announced so far are also likely to be strengthened, both in fiscal and monetary terms. This is, in fact, one of the main risks: that the fiscal policy response does not match the size of the shock. If the impact of COVID-19 on economic activity amounts to 5 pp of GDP, the fiscal measures should be comparable. In other words, if its impact were to double, the fiscal response should also be doubled. Only in this way can the effect of the shock on households and businesses be sufficiently cushioned and the country prepared for rapid recovery once the pandemic is under control.

Faced with a challenge of this magnitude, the EU must take decisive steps. We cannot repeat the mistakes of the last crisis and allow doubts to emerge regarding the sustainability of any member country’s public debt, let alone about the future of the euro. To avoid this, it will be necessary to move decisively towards a fiscal union, developing common financing mechanisms such as Eurobonds and the development of an EU-wide tax capacity, so that we can take full advantage of the EU’s combined potential for public expenditure. If we don’t do this when faced with a humanitarian crisis such as the present, when will we do it? It is true that the institutional developments required cannot be carried out quickly but European institutions have shown themselves to be fast-moving in times of difficulty. Above all, a firm commitment to an ambitious roadmap in this direction could be of great help in such circumstances.

Particular attention will also have to be paid to developments in emerging or developing countries, as they are more vulnerable. In addition to their healthcare systems having fewer resources, several major emerging economies have accumulated macroeconomic and financial imbalances that may limit their capacity to respond to the crisis. Moreover, some of them were already in a fragile political and social situation before the outbreak of the virus, and a high degree of social cohesion is particularly vital at times of difficulty such as the present. In this respect, all the support they can be offered by more developed countries could be crucial.

A crisis of unprecedented scope that will change the world

Although we are still immersed in the acute phase of the COVID-19 crisis, we have two firm beliefs. The first is that we will overcome this crisis. The second is that, despite its presumably temporary nature, the shock is likely to have structural repercussions. Crises on this scale can accelerate latent changes or bring about unexpected ones.

Surely, in the wake of this crisis, we will strengthen our healthcare systems and reassess the role of experts, who have become so vital recently. It is also likely that, from the point of view of production, new ways of organising ourselves will emerge, both globally and locally, either by shortening value chains in exchange for making them more resilient or with the proliferation of different forms of telework. Such changes will also help to speed up the economic transition to a more sustainable and environmentally friendly system.

And, surely, in the wake of this crisis we will also reassess the role of international coordination and leadership. On this global front, the EU is likely to come under unprecedented pressure. The EU’s history tells us that crises have acted as an incentive to move towards greater integration provided there have been adequate institutional and political foundations. This is precisely the situation at present: the institutional and political instruments acquired by the EU during the Great Recession could take another step forward in terms of European integration; something we would have considered unrealistic before the shock. This certainly should be the case.

In short, the world is going to change and it is up to us to decide whether a crisis, in addition to generating threats, can also be a source of opportunities.

Oriol Aspachs and Àlex Ruiz

Àlex Ruiz