Regular update on the major business sectors in Spain based on an analysis of the main economic indicators and big data.

1st Semester 2021

2020 was a tough year for the tourism industry. All the data that became available at year-end show that the impact of the pandemic on the sector has been devastating. After a total standstill during the months of March, April and May 2020, tourism demand failed to pick up appreciably during the rest of the year, even during the summer months when the infection rate seemed to be under control. Moreover, the waves of COVID-19 occurring at the end of 2020 and beginning of 2021, together with the various measures to restrict movement and businesses, have kept tourist numbers at a minimum, aggravating the losses suffered by the sector.

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Activity in Spain’s real estate market is recovering from its extraordinary slump during the first lockdown. In Q3 2020, house sales and new building permits recovered much of the ground lost, a positive trend we expect to consolidate in 2021. Moreover, the impact of the crisis on house prices has been relatively moderate so far, although we expect these will continue to adjust in the latter part of 2020 and the first half of 2021. In particular, CaixaBank Research’s new house price forecasting models at the level of province, based on large amounts of information (big data) and applying machine learning techniques, predict that house prices will fall in 7 out of 10 Spanish provinces in 2021 and grow very moderately in the rest.

The COVID-19 pandemic has highlighted the importance of the agrifood sector as a mainstay of the Spanish economy. During the months of lockdown, the entire food chain (which includes farmers, breeders, fishermen, cooperatives and the food industry, wholesalers, retailers, distributors and logistics operators) had to adapt quickly to secure the population's food supply. In retrospect, it is only fair to acknowledge the excellent response by the whole sector in tackling this challenge.

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.

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.

Spain's real estate sector has been slowing down throughout 2019 at a brisker rate than expected, given the deterioration in the economic outlook. Nevertheless, the fundamental factors supporting housing demand are still solid and no excesses can be observed on the supply side. With a view to 2020, we expect the sector's trend to remain positive although the growth rate will be more moderate, both for prices and sales.

The growth in Spain's inbound tourism has been contained throughout 2019 due to the less favourable global economic environment and the strong recovery by its main rivals in the Mediterranean. However, the tourism sector's profitability looks highly resilient, supported by dynamic domestic tourism expenditure and the industry's drive towards higher quality.

The agrifood sector contributes a lot of value to Spain’s economy, accounting for 5.8% of its GDP, 11% when all the activities in the food chain are included. It is also notable for its great export potential and a resilience that has helped it to weather the ups and downs of the economy over the years.

The first few months of 2019 seem to confirm the positive tone of the sector in Spain, consolidating the excellent inbound tourism figures of recent years. While growth in the number of tourists visiting Spain is slowing down, their expenditure is still increasing significantly. The challenge is how to sustain these trends, redirecting tourism supply towards higher quality segments.

Spain's real estate sector is entering a more mature phase of the cycle characterised by a slowdown in growth in demand and prices. The factors supporting the property market boom (job creation, favourable financial conditions and high foreign demand) are still enjoying a positive trend but have eased slightly.

In 2019, the positive trend will continue in the tourism industry although the past few years΄exceptional growth rates are expected to diminish, in line with the slowdown observed in 2018. The big challenge facing the industry will be to consolidate its excellent performance regarding inbound tourism over the past few years while shifting its focus onto higher value added segments.

The new expansionary cycle in Spain’s real estate sector is getting stronger quarter by quarter. House sales have been posting double-digit figures for the past three years, there is strong growth in construction and prices are clearly on the up. What will the future bring? As explained in this Report, this positive trend is expected to continue in the sector, both because of the Spanish economy’s good performance and also the healthy state of the industry itself.