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Although manufacturing is not among the sectors hardest hit by the crisis, the COVID-19 shock occurred within a context of a prolonged weakness in the sector, not only in Spain but in Europe as a whole. After the initial harsh adjustment, brief and uneven across the various branches of activity, the sector quickly picked up again, approaching its pre-pandemic levels of activity and employment. The outlook for 2021 and 2022 is favourable, driven especially by exports and the investments made via the Recovery, Transformation and Resilience Plan (RTRP). Recent disruptions in global supply chains, caused by global transportation bottlenecks and component shortages, will have a limited, temporary impact.

The economic policies implemented during the pandemic have cushioned the impact of the crisis on families’ financial situation. On the one hand, a further fall in household income has been avoided while, on the other, the ECB’s accommodative monetary policy has led to a reduction in debt interest payments. A detailed analysis of the effort required by households to pay off their mortgages, based on CaixaBank’s own internal data, duly reweighted to be representative of the Spanish population, shows that these measures have managed to reduce the mortgage burden during the pandemic for most households, although pockets of vulnerability still remain among low-income households.

In the course of 2021 we have seen that, in the wake of the pandemic, a misalignment has emerged in the real estate sector between a demand that has recovered very quickly and a supply that is more dependent on structural factors and therefore continues to lag behind. As a result of this misalignment, house prices have started an upward trend which may continue to some extent in the coming quarters as a result of higher production costs in the sector and problems with the supply of certain raw materials. Nevertheless, in the medium term, as new supply enters the market and tensions in global supply chains ease, prices should return to a growth rate that is more in line with the trend in household income.

The collapse of tourism in Spain in the wake of COVID-19 has pushed the tourism industry to undertake major price adjustments and the hotel sector has been the greatest exponent of this trend. According to data from the National Statistics Institute, the price per room per day charged by hotels in the summer of 2020 was 16% lower than the previous year. However, this huge price cut does not seem to have played a decisive role in reviving demand in some regions. The change in travel preferences brought about by the pandemic has meant that tourists have opted for nearby, familiar and less congested destinations, focusing less on price and thereby limiting the success of big reductions in hotel prices.

One of the variables with the greatest impact on consumption decisions are prices, which fell on aggregate by 0.3% in 2020 in Spain according to official data.²⁵ However, there were marked changes in consumption patterns last year, making it very difficult to accurately measure the figure actually faced by consumers. CaixaBank’s own estimates based on high-frequency internal data suggest that inflation was somewhat higher, namely 0.1%.²⁶ Moreover, inflation did not affect everyone equally, with differences depending on age and income.

Consumption in Spain is recovering faster than in previous crises. This is highlighted in the consumption tracker produced by CaixaBank Research based on internal data (available in Spanish: Monitor de Consumo). In the month of October, our consumption indicator was already 13% higher than in the same month in 2019. 

At this point in the pandemic, no-one is in any doubt that the economic scenario largely depends on how the health situation will develop. After a period of relative normality during the summer, a large number of European countries have had to step up restrictions on people’s movements and business activity. The economic impact of this second wave is considerable, although clearly less than the effect of the strict lockdowns imposed in Q2. This situation has worsened the economic outlook for the beginning of 2021, although the outlook for the spring is more promising with hopes being placed on the availability of a COVID-19 vaccine and other measures to help strengthen the health strategy (such as the low-cost, rapid testing of large numbers of the population).

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.

However, it is important to remember that the economic impact of COVID-19 is huge and the effects of the pandemic on the sector will take time to disappear completely. The Recovery Plan for Europe, or Next Generation EU (NGEU), allocated a substantial sum of 750 billion euros, will be decisive in helping to boost the recovery. One of the EU’s main targets, which this recovery plan aims to support significantly, is the ecological transition to become climate-neutral by 2050. In the EU, buildings are responsible for emitting about 40% of the gases that cause global warming. The involvement and commitment of the construction industry is therefore essential to reduce greenhouse gas emissions to the agreed targets, while more energy-efficient «smart» buildings also support another of the Commission’s key targets: digital transition.

These European funds represent a unique opportunity to modernise Spain’s economy, which will receive around 72 billion euros in non-refundable transfers between 2021 and 2026, equivalent to 5.8% of its GDP in 2019. About 6% of the European NGEU funds will be aimed at renovating housing, tripling public investment in this area. In particular, the government plans to recondition 500,000 homes between 2021 and 2023. This target, if achieved, would be very positive for the sector but it is highly ambitious since it requires multiplying the current reconditioning rate by six in just three years.

In addition to renovations, another priority for housing policy over the coming years is the improvement of social housing. The severe economic and social impact of the COVID-19 crisis has highlighted the need to provide a large number of rented social housing to resolve the current shortage and be able to ensure the most vulnerable sections of the population have somewhere to live. Policies that should drive a green, social and digital recovery.