Spain and COVID-19: sector impact

The situation of the tourism sector improved considerably during the summer months, outperforming the projections of many of the companies in the industry. The vaccination of a large part of the population, the implementation of the EU Digital COVID Certificate, the great pent-up demand for tourism services and the easing of restrictions in the hospitality industry have been the compendium of factors that have supported a significant and necessary recovery for the sector. However, among the factors mentioned above, the one we believe has been most crucial is vaccination, as this has minimised the number of severe cases of COVID-19, helping to relieve the pressure on the healthcare system. This not only opened the door to a recovery during the summer season but has also laid the foundations for travel to get back to normal in the medium term, as predicted.

Domestic tourism, which before the pandemic had accounted for around 30% of tourist expenditure in Spain, achieved a larger share this summer than in the same period of 2019 as many Spanish tourists who used to go abroad for their holidays chose destinations closer to home. On the other hand, international demand was still more sluggish than usual, albeit posting considerable improvement: overnight stays by foreigners went from a 90% drop in May compared with the same month in 2019 to a 48% reduction in August. According to CaixaBank’s internal data, the source countries that have provided the most support for this improvement are those that have adopted the Digital COVID Certificate, mainly the countries in the Schengen Area. Other important countries, such as the UK and American markets, were still far from their pre-COVID levels although they showed a promising trend over the summer, leading us to believe they will be responsible for most of the sector’s improvement in 2022, once tourist arrivals from the EU consolidate.

Given this situation, we expect 2021 to close with tourism-related GDP at 54% of its 2019 level, up by 55% annually. Looking ahead to 2022, our viewpoint remains optimistic. We expect the good domestic and EU tourism figures to consolidate while the British and American source markets should gradually improve, bringing tourism-related GDP up to 85% of its 2019 level, an annual growth of 57%. These figures would mean that the 2022 financial year would be profitable for the vast majority of the industry, after a very tough year and a half. We can therefore reaffirm that the tourism industry’s long-term sustainability is beyond doubt and it will once again play a leading role in driving the growth of Spain’s economy.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

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 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.

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

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.

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.

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.

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.

Non-residential mobility in Spain

Change with respect to the baseline* (%)

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.

Face-to-face payments via CaixaBank payment terminals

Year-on-year change (%)

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)

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.

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

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

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

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.

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.

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.

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

% of total

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.

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.

Intensity of border restrictions

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

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.

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)

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.

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.

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

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.

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.

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.

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* (%)

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.

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

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.

Community mobility regarding commercial premises

Change with respect to the baseline* (%)

Daily airport connections for the main airports in South East Asia

Number of flights    

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 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

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* (%)

Daily airport connections for the main airports of America

Number of flights   

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.

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 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.

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.

• Available economic indicators show that the sector has been one of the least affected by the crisis. In fact, the primary sector's relative share of the total economy increased and the agrifood industry posted a much smaller decline than the manufacturing industry as a whole in Q2 2020. Similarly, in the area of employment, the sector has recorded fewer job losses and a smaller percentage of workers have been furloughed.
• The pandemic has led to a notable change in the food consumption patterns of Spanish households,  with home consumption gaining weight. In fact, during the weeks of lockdown, consumption outside the home plummeted (i.e. hotel and catering industry). The use of e-commerce to buy food has also increased, in part to minimise travel and contact between people. We can examine these patterns in detail by using CaixaBank's own data on card expenditure via its POS terminals. In spite of the agrifood sector's good performance overall, we can see that the disruption to foreign tourism continues to harm the food service establishments aimed at international clients and, consequently, the sub-groups of agrifood products sold to such establishments for final consumption.
• On the other hand, the agrifood sector's relatively good performance during the crisis cannot be fully understood without considering exports. A large proportion of the sector's production is destined for export (around 50 billion euros worth), to the extent that Spain is the fourth largest exporter in the European Union and the seventh worldwide. With the crisis, agrifood exports have increased across the board, with the upturn in exports of citrus fruits to Europe and swine meat to Asia being particularly notable.
• The good positioning of Spanish agrifood products in international markets is the result of the efforts made in recent years to internationalise the industry, reflecting its high level of competitiveness compared with other agrifood-producing countries. But if the situation we are going through has demonstrated anything, it is that more digitalised companies are better prepared to adapt to a changing environment. Consequently, in order to become even more competitive, the sector needs to take advantage of the new digital technologies at all the different links in the food chain. Digital transformation also offers ways to resolve some of the major challenges facing the sector. For instance, precision-farming techniques can help to improve crop yields whilst also enhancing the sector's sustainability by using water and energy more efficiently.
• In short, the technological revolution of the century is transforming an agrifood sector that is moving away from its traditional image. The future will bring us the Food Chain 4.0, a totally connected ecosystem from farm to table.

At this point in the pandemic it is well-known that the crisis caused by COVID-19 is having an unprecedented impact on the world's economy, and on the Spanish economy in particular. The strict lockdown measures in place for much of Q2 2020 and restrictions on international tourism led to a historic fall in Spain's GDP, down by 17.8% quarter-on-quarter (21.5% year-on-year), the largest drop observed since 1995 (the year the National Statistics Institute started to produce this homogeneous series). In comparison, other nearby European economies recorded a very sharp but clearly smaller decline in economic activity. In quarter-on-quarter terms: –11.8% in the euro area as a whole, –9.7% in Germany, –13.8% in France, –12.4% in Italy and –13.9% in Portugal. Only the United Kingdom posted a larger decline than Spain's economy in Q2, namely –20.4% quarter-on-quarter, as in addition to being hit hard by the pandemic it is also immersed in the complex process of finalising Brexit.

Available activity indicators for Q3 suggest the Spanish economy rebounded remarkably well  thanks to the lifting of the restrictions on people's movements. However, there are signs of a slowdown in this improvement due to the sharp rise in the number of confirmed COVID-19 cases and the new measures being taken to curb the spread of the disease. It is estimated that, in the last quarter of the year, activity could be 12% below the previous year's level. The recovery is therefore still incomplete and the severity of the reduction in activity means that it will take years to regain pre-crisis levels. Specifically, CaixaBank Research's macroeconomic scenario predicts this will not happen until 2023, although it should be remembered that the degree of uncertainty surrounding economic forecasts is unusually high.

Within this context of a dramatic reduction in activity, the agrifood sector has reported highly favourable and even counter-cyclical trends. The primary sector's gross value added grew by 3.6% quarter-on-quarter (6.3% year-on-year) in Q2 2020, a quarter during which most of Spain's population was under lockdown and the consumption of essential goods rose considerably. The primary sector therefore increased its share in the overall economy in Q2, contributing 3.8% of GDP compared with 2.7% in 2019.

The trend in the agrifood industry has also been positive compared with the manufacturing industry as a whole, much harder hit by the lockdown. Specifically, while total manufacturing output fell by 26.7% year-on-year during April-June, the decline in food production was less pronounced, at –9.4%. In August (latest figures available), the industrial production index for the food sector continued to recover and was only 1.3% below its pre-crisis level. Electricity consumption by business sector also shows that the agrifood industry was operating at almost full capacity during the most critical months of the pandemic: while industry's electricity consumption fell overall by 16.3% year-on-year in
Q2 2020, it was barely 1% less in the food industry.

The extent to which employment altered during the months of lockdown and its subsequent recovery has been very uneven across different sectors. In the primary sector, the number of workers registered with Social Security fell by 1.9% year-on-year in Q2 (compared with –4.4% for all such workers) while in the agrifood industry it fell by 2.4% (compared with –3.7% for the manufacturing industry as a whole).

Moreover, the agrifood industry has not tended to use the measures implemented to contain job losses (the furlough scheme and extraordinary allowances f1¹ By contrast, the percentage of furloughed employees in the primary sector was just 0.5% (around 4,000 people) and 11.8% in the agrifood industry (compared with 18.3% in manufacturing). The percentage of self-employed workers without work in the primary sector reached 3.5% in May (compared with 43.7% for the economy as a whole and 34.1% for manufacturing).²

he most recent data, for the month of September, show that the recovery in registered workers has got stronger over the summer. Both sectors have posted smaller decreases than in previous months: –0.1% and –1.3% year-on-year in the primary sector and in the agrifood industry, respectively. Moreover, September has seen the notable return to the labour market of furloughed workers: only 0.1% and 2.8% of employees in the primary sector and agrifood industry were in this situation, respectively (compared with 4.8% of total employees). The furlough scheme has therefore been hugely effective in safeguarding labour relations during the toughest months of the pandemic.

• As noted above, the agrifood sector's good performance during the most critical months of the pandemic could be explained by the lockdown itself, which forced people to stay at home and led to an increase in the consumption of basic goods such as food (as well as a certain stockpiling effect during the first few weeks of the state of emergency). Consequently, one direct result of the lockdown was therefore a marked change in household food consumption patterns, which increased sharply within the home and all but disappeared outside (i.e. in the hotel and catering industry). This substitution effect has continued, albeit to a lesser extent, after the state of emergency was lifted. We explore this issue further in the next article, «Changing consumption patterns during lockdown: from the restaurant to the home».
• A second factor that would explain the agrifood sector's good performance during the coronavirus crisis is more structural in nature, thanks to the good positioning of Spanish agrifood products in international markets as a result of the internationalisation efforts made over the past few years. We examine the trends in agrifood exports in more detail in the third article of this report: «The resilience of Spanish agrifood exports».

Before the coronavirus crisis, Spanish households used to consume a significant part of their food outside the home. Specifically, 36.5% of food expenditure in 2019 (8.6% of total household expenditure, equivalent to 48.5 billion euros) was spent outside the home.¹The arrival of the coronavirus and strict measures restricting mobility to stop it from spreading radically changed families' consumption patterns; they stopped frequenting restaurants and other catering establishments to consume food almost exclusively in their homes.  

According to data on payment card activity via CaixaBank POS terminals, during the state of emergency spending on supermarkets and large food stores grew by nearly 50% year-on-year. The week of 9-15 March saw a 90% increase; i.e. card purchases almost doubled compared to the same week last year, mainly due to the stockpiling of food by many households and, to a lesser extent, the increased use of cards instead of cash as a means of payment. The pandemic tested the food chain's resilience and ability to adapt to a surge in demand, the greatest stress it has been put under in recent history. In hindsight, it is only fair to acknowledge the excellent response by the entire sector in meeting this challenge and securing food supplies for the entire population at all times.

From July onwards, with the relaxation of lockdown measures, a gradual slowdown in food expenditure began to be observed. However, demand is still unusually high: at the end of September, card expenditure on food was still 20% higher than the previous year, showing that the health crisis is still affecting household consumption patterns.

Although all food product distribution channels have seen their sales increase, the rise in online shopping was particularly notable. Although the sector was not always able to respond to the peak demand via this channel during the first weeks of the state of emergency, after a short time many companies had already expanded their logistics capacity and workforce to meet consumers' new needs. Specifically, payments via CaixaBank virtual POS terminals recorded a considerable upturn in online shopping from the second half of April and growth rates are still strong, close to 60%. As a result, the market share of e-commerce has increased significantly: from 1.6% in 2019 to 2.4% between 9 March and 6 June 2020, according to data published by the Ministry of Agriculture.² 

Another interesting figure that allows us to assess the degree of penetration of online food purchases comes from the CIS barometer which, in May, included several questions on consumption habits and trends during lockdown. The barometer revealed that 20% of respondents had purchased food products via online channels during lockdown, a percentage very similar to those who had purchased computers and IT equipment and only exceeded by purchases of clothing, fashion and footwear (27.7% of respondents). This survey also revealed that 67% of respondents made face-to-face purchases less frequently and that 19% preferred neighbourhood and local stores (compared to 12% before the state of emergency).

The agrifood sector, however, has also suffered from the crisis. Shutting down the Spanish economy to stop the spread of the pandemic significantly affected the hotel and catering industry, which accounts for a third of the industry's total turnover, especially affecting those sub-sectors whose production is almost entirely aimed at this channel.

As can be seen in the chart above on CaixaBank POS terminal activity, spending on food service establishments plummeted with the onset of the state of emergency, posting falls of over 90% between the second half of March and the end of April. In May, food service expenditure using Spanish cards began to recover relatively quickly, picking up considerably in the summer months.

Expenditure on food service during the summer months by municipality

However, foreign card spending on food service has suffered a severe blow and has yet to show signs of recovery. While there was some improvement in July and August (–60% year-on-year compared with falls of over 90% during the state of emergency), in September the drop was once again severe (–80% year-on-year). The maps above show the trend in expenditure on food service in July and August 2020 compared with the same period in 2019 at a municipal level. The predominant colour on each map is evident: green in the map on the left, corresponding to Spanish cards and indicating positive year-on-year growth in most municipalities; and red in the map on the right, reflecting the decrease in foreign card expenditure on food service this summer. The islands and the Mediterranean basin have been hardest hit because of their greater dependence on tourism.

The food service sector is certainly very dependent on tourism. According to CaixaBank's own data, 21% of card expenditure on bars and restaurants in 2019 was made with foreign cards (see the table below), a percentage that rises to 37% for gastronomic restaurants. In addition, 15% of expenditure was made with Spanish cards from a province other than the one in which the establishment is located (an indication of dependence on domestic tourism).³ In the case of gastronomic restaurants, almost half their turnover depends on domestic and foreign tourism. Moreover, in many cases these are highly seasonal businesses that have been hugely affected by the collapse of international tourism during the summer. In July and August, foreign tourist arrivals in Spain totalled fewer than 5 million compared with 20 million in 2019 (–75% year-on-year).

The food service sector is highly dependent on tourism

The collapse of international tourism has significant implications for the demand of food products. According to an analysis of the input-output tables, for every euro of turnover in accommodation and food services, 30 cents are demanded from the agrifood sector.⁴ In other words, any shock to tourism is passed on through the food chain to those who supply food to these restaurants, products that are less frequently consumed at home and therefore face significant difficulties in finding an alternative market.

Among the products most affected at the beginning of the lockdown were lamb and goat meat, sheep and goat's milk, fresh fish and wine, among others. In response to this situation, some small producers formed alliances to develop online distribution channels and promote local sales, revealing a great capacity to adapt to an exceptional situation. Even the Minister of Agriculture himself, at the beginning of the state of emergency, called on households to consume products that had particularly suffered from the closure of the food service business.

Recent developments in the pandemic in Spain does not allow us to be too optimistic about international tourism's prospects for recovery in the short term. Until there is an effective vaccine or treatment against COVID-19, tourist numbers are likely to remain very low. However, once we have overcome the pandemic, the excellent position enjoyed by Spain's tourism industry before the crisis suggests it will recover strongly in the medium term.⁷

The unexpected arrival of the pandemic has shown that the most digitalised companies were more prepared to adapt to the new situation and were able to continue to operate much more smoothly than the rest. There is no doubt that, in this new environment, the digital transformation of companies is now unavoidable in order to boost their competitiveness.

Big data, robotics, the internet of things and blockchain are just some examples of the new digital technologies gradually being adapted by firms, particularly in the agrifood sector. Technology is advancing at a frenetic pace and is offering the agrifood chain a large number of opportunities to produce more efficiently and sustainably. However, statistical information on the degree to which such technologies have been taken up, and the most comprehensive official statistical source¹, does not provide information on the primary sector. Below we present a novel analysis of the «popularity»  of new digital technologies in the agrifood sector based on data from Twitter.

Data from Twitter can be extremely valuable in detecting new trends as it allows us to analyse the popularity of certain terms according to how frequently they appear in tweets. However, it is true that «talking about something» is not the same as successfully implementing the various digital technologies in a company's recurring operations. For this reason the results presented below should be interpreted simply as an indication of new trends that may be taking root in agrifood companies.

For this study, data was processed from over 24 million tweets sent by individual users and digital media during the period 2017-2019. Among these, 2 million corresponded to the agrifood sector. Using natural language processing techniques, the tweets were categorised according to mentions of different digital technologies and to the business sector.² The key to obtaining relevant data from social media is to first define «seed» words or phrases to identify texts corresponding to each of the business sectors, as well as «seed» words or phrases related to the different digital technologies of interest.³ Using a machine-learning algorithm, other words and phrases related to the concept in question that were not initially included were also identified, thus broadening the spectrum of texts analysed. At this stage, it is important to carefully screen for polysemous words (i.e. those that have more than one meaning, such as the word «reserva» in Spanish, which can be used to refer to a hotel booking as well as an aged wine).

To assess the agrifood sector's degree of digitalisation according to data from Twitter, we first need to know how common tweets about digitalisation are in other business sectors. The most digitalised industry according to our analysis is the information and communication technologies (ICT) sector: 3.2% of the sector's tweets contain terms related to digitalisation, a result that is not surprising given the very nature of the industry. Next comes finance and insurance with 2.7% of the tweets.

This percentage is obviously lower in the primary sector at 0.6% but it is similar to the 0.7% for professional, scientific and technical activities. In the case of the agrifood industry, the percentage of tweets on digitalisation is only 0.3%, very close to the basic manufacturing sector (which includes the textile, wood, paper and graphic arts industries), with the lowest percentage among the sectors analysed, 0.2%.

The wealth of data obtained from Twitter allow us to identify the most popular digital tools in each business sector according to how frequently they are mentioned in the tweets examined. According to our analysis, a large proportion of the primary sector's tweets about digitalisation tend to include issues related to big data (45% of all tweets about digitalisation). One clear example of the application of big data in the sector can be found in «precision agriculture» techniques which require large amounts of data to be analysed to optimise decisions and thereby increase production and, in turn, ensure sustainability. These techniques are used, for instance, to calculate the irrigation requirements of crops by taking into account climatic conditions (sunlight, wind, temperature and relative humidity) and crop characteristics (species, state of development, planting density, etc.). To carry out this calculation, real-time updated meteorological data, a large computing capacity and fast data transmission speeds are all required for an automatic irrigation system to be properly adjusted. This technology helps to use water more efficiently, a highly relevant aspect in areas with a Mediterranean climate that are extremely vulnerable to climate change and where water is in short supply.

Other popular technologies in the primary sector are the internet of things (16% of tweets) and robotics, including drones (10% of tweets). The new digital technologies promise to revolutionise the field of agriculture and stockbreeding by the middle of this century, the same as the mechanisation of farming in the xxi century. Agricultural Machinery 4.0 (which is closer to the robots in science fiction films than to the tractors we are used to seeing on all farms in the country) helps to increase productivity whilst also improving working conditions in the field. This trend towards more automated agricultural tasks has become stronger in the wake of the coronavirus pandemic, as the difficulty in recruiting seasonal workers due to international mobility restrictions has led to increased interest in robotics and agricultural automation. In fact, companies that manufacture robots for agriculture have seen a sharp increase in orders, such as robots that pick strawberries while removing mould with ultraviolet light.¹⁴ 

The use of drones warrants particular attention as this has grown exponentially in recent years and applications are increasingly widespread: from the early detection of pests and the aerial inspection of large areas of crops to locating wild boar with heat-sensitive cameras to prevent the spread of African swine fever to domestic pigs.⁵

The popularity of various digital technologies in the agrifood sector

Blockchain is the technology that stands out most in the food sector (30% of the total number of tweets on the sector's digitalisation) and this comes as no surprise as it has many different applications for the food and beverage industry. Producing a chain of unalterable, reliable records, blockchain makes it possible to guarantee the complete traceability of products throughout all the links in the food chain. Simply scanning a QR code provides access to all the data regarding the origin, production method, veterinary treatments received, ingredients used, etc. A large number of agrifood companies are already experimenting with blockchain as it offers clear benefits in terms of transparency regarding origin, product quality and food safety, aspects that are increasingly valued by consumers. Blockchain technology is also being used to limit food waste, another essential challenge for the sector.

There are some digital technologies that are not very popular across all economic sectors, perhaps because they have a more limited or specific range of application. These are technologies that, despite having a low percentage of tweets in absolute terms according to our study, may be relatively popular for a particular sector compared with the rest.

To detect such cases, we have calculated a new metric, namely a concentration index which takes into account the relative popularity of technologies in a sector compared with the rest of the sectors.⁶ By using this methodology, we have found that the primary sector continues to stand out in terms of big data. Specifically, the primary sector concentrates 9.2% of the total number of tweets mentioning big data made by all sectors, a much larger proportion than the 3.1% share of primary sector tweets out of the total number of tweets analysed (as can be seen in the following table, in this case the concentration index is 3). We have also determined that the sector is particularly interested in the internet of things, as already mentioned, but have discovered that nanotechnology is also a relatively popular technology in the primary sector. In other words, although only 3.8% of the tweets in the primary sector deal with nanotechnology, this percentage is high compared with the 1.7% share of nanotechnology tweets out of the total (in other words, this technology is not very popular in general across all sectors but is slightly more popular in the primary sector than the others). This find is not surprising since genetic engineering is one of the fields in which technology has advanced most in order to boost crop yields. For example, by optimising the yield of vines it is possible to develop plants that are much more resistant to extreme weather conditions and pests.

Concentration index for tweets related to each technology in comparison with the other sectors

Finally, virtual and augmented reality is also a relatively popular technology in
the agrifood industry. Specifically, the agrifood industry concentrates 6.2% of the total virtual and augmented reality tweets made by all sectors, a percentage that more than doubles the 2.5% share of primary sector tweets out of the total number of tweets analysed (the concentration index is equal to 2.5 in this case). This technology uses virtual environments (virtual reality) or incorporates virtual elements into reality (augmented reality) that provide additional knowledge and data that can be used to optimise processes. At first it may be surprising that this technology is relatively popular in the agrifood industry but its uses are spreading as the industry implements digital technologies in its production processes, in the so-called Industry 4.0. One specific example of how this technology is used is in repairing breakdowns. When a fault occurs, operators can use augmented reality goggles to follow the steps contained in virtual instruction manuals that are projected onto the lens to help resolve the incident. The glasses recognise the different parts of the machine and visually indicate to operators where they should act to solve the specific problem.

There are numerous examples of new digital technologies being applied in the agrifood sector. We are witnessing a revolution that is destined to transform the different links in the food chain: from the exploitation of data and the use of drones to make harvesting more efficient to implementing blockchain technology to improve the traceability of the final products that reach our homes. In short, the future will bring us the Food Chain 4.0, a totally connected ecosystem from the field to the table.

The agrifood industry is a mainstay of the foreign sector for the Spanish economy. In 2019, sales abroad totalled 50.36 billion euros, 5.9% more than in 2018, accounting for 17.4% of all goods exported. Spain is a major exporter of agrifood products: it is the fourth largest exporter in the sector in the EU, behind only the Netherlands,¹ Germany and France, and globally it overtook Canada in seventh place in the world ranking of food-exporting countries in 2018 (latest available WTO data), with a global market share of 3.6%, well above the 1.8% share for all goods exports.

Since last March, the COVID-19 pandemic has had an extraordinarily negative impact on international trade. However, in spite of this general pattern of decline, Spanish agrifood exports grew by 4.9% year-on-year between January and July 2020. Exports from the primary sector were stronger, posting a year-on-year increase of 6.3% in the year to July, while exports by the agrifood industry rose by 4.1% in the same period. Such growth contrasts with the decline in all goods exports (–14.6%), so that the share of agrifood exports out of the total has grown significantly, reaching 30% in April. Agrifood imports also increased during this period but to a lesser extent, so that the external trade surplus of agrifood goods reached a record high in July: 1.30% of GDP (compared with 1.06% in 2019).

Ranking of countries according to their agrifood product exports (2018)

The meat sector has led the growth of agrifood exports with a 25% year-on-year increase between January and July 2020, thanks to the rise in sales of swine meat (+35%).2The second group of products with the largest increase is that of canned meat or fish (+13.2%). Next come the product groups of oilseeds and coffee and tea, up by more than 10% but with a smaller share of all exports (close to 1%). More significant is the progress made by fruit (+9.4%), the most exported group (17.6% of all agrifood exports in 2019).

Among fruits, citrus (TARIC 0805) and apricots, cherries, peaches, plums and sloes (TARIC 0809) have seen strong growth (+18.2% and +17.2% year-on-year until July, respectively). Pulses and vegetables, which accounted for 13.1% of all agrifood exports in 2019, performed more modestly in the first seven months of 2020 (4.3%) but some products such as carrots, cucumbers and cabbages posted very significant increases. On the other hand, some product groups have recorded declines, such as fish, crustaceans and molluscs –15.7%), beverages (–5.2%) and fats (–5.4%). In particular, olive oil exports have fallen by 7.4% year-on-year and wine by 5.4%, although both products are still in the top 5 of exported agrifood products.

Aragon is the autonomous region with the highest growth in exports in the first seven months of 2020 (+33.8%) thanks to its specialisation in swine meat (TARIC 0203), whose demand has picked up strongly, especially from Asian countries. This is followed by the Basque Country (+13.3%) due to the upturn in exports of chemically modified fats and oils (TARIC 1518); Catalonia (+8.8%) also benefited from the boom in swine meat exports and Valencia recovered (+7.6%) due to the effect of citrus products (+16.7%, more than 200 million euros compared with the same period in 2019), in great demand by our trading partners during the COVID-19 crisis. At the other end of the scale were the Balearic Islands and Canary Islands with very sharp falls in their agrifood exports (–28.4% and –25.0%, respectively). Although the share of these exports out of the total exports of island goods is quite low (4.7% and 9.0%, respectively, compared with 17.4% for Spain as a whole), these are not good figures for economies that have already been very hard hit by the huge crisis in the tourism industry.

Agrifood exports by autonomous region

Value of exports in 2019 and growth between January and July 2020

EU countries are the main destinations for Spanish agrifood exports, with France and Germany at the top. Both destinations have performed very well in the first seven months of 2020, with advances of 4.7% and 9.5% year-on-year, respectively. They are closely followed by Italy and Portugal which received 9.8% and 8.9% of Spanish agrifood exports in 2019, respectively. These two markets, however, have shown some weakness this year.

In fifth position is the United Kingdom, with 7.7% of the total and the first non-EU destination. Between January and July 2020, exports to the UK grew strongly (6.8% year-on-year), a remarkable fact given the sharp decline in the country's economy in Q2 2020. It is clear that the high level of uncertainty regarding the rules that will govern trade relations between the UK and the EU from January onwards is causing some concern in the sector.

In the hypothetical case that the relationship between these two parties would ultimately involve tariffs, agrifood products (along with textiles and, to a lesser degree, motor vehicles) are among the goods to which higher tariffs, on average, would be applied, according to a Bank of Spain report.³ The same report identifies Murcia as one of the regions that could be most affected by a hard Brexit (or lack of agreement) due to the large volume of fruit and vegetable exports it sends to the UK market. In any case, the study also points out that the vulnerability to Brexit of Spanish exporters to the United Kingdom is partly offset by their relatively high level of productivity and the degree of geographical diversification of their exports.

Trend in agrifood exports to the main destinations

China is the second largest non-EU destination for Spain's agrifood exports, a figure that practically doubled in the first seven months of 2020 compared with the same period last year (+94.1%). This exceptional performance is due to swine meat exports to the country (+216%), still affected by African swine fever.

The next country in the ranking is the United States, with almost 2 billion euros of exports in 2019, 3.8% of the total. However, the recent trend is not very positive since, between January and July 2020, there was a slight decline of 1% year-on-year. This decrease could be related to the higher tariffs (from 3.5% to 25%) imposed by the US on certain agrifood products on 19 October 2019, a decision under the WTO ruling on state aid to Airbus that authorized the US to impose countermeasures to the EU worth 6.8 billion euros, which affected Spain to the tune of about 790 million euros.

The table below details the trend in exports of the main products affected by these measures. It can be observed that Spanish exports to the US of olive oil, fatty cheeses and biscuits are performing well in spite of the tariffs. In fact, exports of these products to the US are growing more than to other destinations. On the other hand, the trend is very bad for wine, olives, certain types of swine meat and lemons. Perhaps the most worrying case is that of olives, as 22% of these exports went to the US in 2019. On the other hand, the share of the US market for other products is lower, so it may be relatively easier to redirect these to other markets.

Main agrifood products affected by US tariffs

However, although the figures do not seem alarming, it should be noted that there is a high degree of uncertainty surrounding the policies that will govern Europe's future trade relations with the US. Trade has been the US government's battleground since the beginning of 2018 when it began its bitter disputes with China as well as the EU, albeit to a lesser degree. Although there was some rapprochement at the end of August (in the end, the US did not carry out its threat to raise tariffs already imposed on European products in October 2019), recent restrictions on technology clearly indicate that trade tensions could easily return and affect the sector again. On the other hand, it is also important to note that the EU is still pushing its trade policy agenda, reaching bilateral trade agreements with other countries such as Canada and Japan, which could open up new opportunities for the agrifood sector.

Throughout the summer, after the pandemic peaked in March, April and May, the global economy saw a remarkable, widespread recovery in most countries. Nevertheless, the latest indicators point to the second wave of COVID-19 rapidly cooling down this recovery, so we cannot rule out a further decline in activity in Q4 2020. However, it is very important to note that the economic impact of the latest restrictions on people’s movements is clearly less than the effect of the severe lockdown in Q2.

Spain’s economy also recovered strongly in Q3 2020 post-lockdown. Specifically, after decreasing by 17.8% in Q2 2020, Spain’s GDP grew by a significant 16.7% quarter-on-quarter in Q3 2020, confirming the economic recovery despite the fact that it is still 8.7% below its Q3 level last year. However, as has happened in the major international economies, the latest indicators point to this recovery cooling down and a more dubious tone for economic activity in Q4 due to the second wave of COVID infections.

Not surprisingly, the recent turn of events, worse than anticipated a few months ago, has affected growth prospects. CaixaBank Research’s current scenario predicts 6.0% GDP growth¹ in 2021, still a notable recovery but less than previously forecast (8.6%). This scenario is based on a series of hypotheses, including the likelihood that the COVID-19 vaccine will be available in the first few months of the year, in principle for the most vulnerable people, and that other measures will be implemented to diversify the health strategy (such as the mass testing of the population using low-cost, rapid tests), which would support economic activity and ensure a more resilient recovery. However, Spain’s GDP is not expected to reach its pre-crisis levels until 2023, somewhat later than our main European partners given the greater relative weight of tourism in the country’s economy, a sector that will continue to perform well below its potential.

As for the real estate market, activity has also been recovering after going through a slump of unprecedented magnitude during the lockdown. House sales and new building permits have picked up considerably since the summer, a trend we expect to consolidate in 2021. Moreover, the effect of the crisis on house prices has been relatively moderate so far, although we are still expecting some correction in the last few weeks of 2020 and the first half of 2021. Consequently, throughout 2021 the real estate sector will continue to recover gradually from the pandemic’s severe impact.

Demand for housing has recovered very quickly since the summer. The number of house sales fell only very slightly in September (–1.1% year-on-year), leaving behind the slump observed during the lockdown (–36% year-on-year between March and July). However, there is a significant difference between the sales trends for new and second-hand housing: while sales of new builds have recovered strongly (+29.2% year-on-year), second-hand house sales have continued to decline in year-on-year terms, albeit more slowly than in previous months (–7.4% year-on-year in September compared with –16.1% year-on-year in August). As a result, sales of new builds now account for 22.2% of all house sales, compared with 18.4% in 2019.

One interesting point is the significant rise in sales of houses as opposed to apartments during the pandemic, the historical series reaching a peak in Q3 2020 with 20.4% of all transactions recorded for the quarter.² This indicates a certain change in consumer preference as people are now looking for larger homes with more outdoor space, such as terraces and gardens, after experiencing months of enforced lockdown due to the health crisis.

Also noteworthy is the strong recovery in house purchases by foreigners³ in Q3 2020 (+42.5% quarter-on-quarter), after the sharp drop in Q2 (–46.6% quarter-on-quarter), bringing the relative share of foreign purchases to 11.4% compared with 10.7% in Q2. In absolute terms, this translates into nearly 11,400 sales to foreigners in Q3 2020 compared with 8,000 in Q2, a figure which, however, is still far from the 15,000+ in Q1 and one year ago. As usual, the British, French, Germans and Belgians are the main buyers of Spanish properties, usually for holiday purposes. These nationalities are followed by the Moroccans and Romanians, who tend to buy housing for residential purposes. The Italians, Swedish, Dutch and Russians complete the top 10 of buyers by nationality.

CaixaBank Research forecasts for Spain’s real estate sector

We expect the rate of growth in sales to ease slightly over the next few months. Firstly, because most of the sales that had to be postponed during the lockdown due to mobility restrictions will have now gone through. And, secondly, due to the impact of the economic situation on the gross disposable income of households. Although the labour market has evolved very positively post-lockdown (the Q3 2020 labour force survey (LFS) shows a strong recovery in the total actual hours worked and a 3% increase in employment compared with Q2), recent months have seen a reduction in the reinstatement of furloughed workers from the first wave, with the addition of furloughed workers from the second wave. At CaixaBank Research we therefore expect the unemployment rate to rise significantly in Q1 2021 (to 19%) due to higher job losses in the coming months. However, job creation should gain momentum in Q2 2021, especially in view of the summer, provided our hypothesis is confirmed that the epidemiological situation will allow the tourist season to operate relatively normally.

For their part, financial conditions will continue to support housing demand. Over the coming months, the ECB is very likely to extend some of the monetary policy measures it quickly and forcefully implemented at the start of the pandemic (from asset purchases estimated at almost 2 trillion euros in 2020-2021 and injections of liquidity under very favourable conditions to the easing of regulations and collateral requirements). One reflection of the effectiveness of these measures is the continued improvement in credit to households in order to purchase housing (–6.9% year-on-year in cumulative terms from January to October compared with –37.3% year-on-year between March and May). On the other hand, the Q3 bank lending survey indicates slightly tighter terms and conditions on loans to households for house purchases, although the overall terms and conditions for new loans remain unchanged.⁴

By 2021, we expect the number of new building permits to gradually rise to 90,000. This would bring the production of new housing in line with the net creation of households over the past 12 months (also estimated at 90,000 by the Economically Active Population Survey or EAP). However, it is important to note that the National Statistics Institute (INE) has substantially lowered its projections for net household creation in the next few years. Specifically, the INE forecasts that approximately 60,000 households will be formed per year between 2021 and 2025, less than half the 135,000 households per year projected two years ago. These projections assume considerable flows of foreigners into Spain, taking into account the fact that the number of households made up of Spaniards is expected to fall by around 100,000 per year.

EPA data show that employment in the construction sector recovered particularly strongly in Q3 2020, with the year-on-year rate rising to 1.6% compared with –8.4% in Q2. However, in effective terms the hours worked provide a better indication of the trend in employment. These figures indicate that, in construction, the actual hours worked in Q3 were already slightly higher than their level a year earlier, up by 0.5%. Moreover, it should be noted that construction workers who had been furloughed have now rejoined the labour market. Whereas these workers accounted for 35.2% of all construction employees in April, by October their percentage had fallen to 3.4%.⁵ Furlough measures have therefore been a highly effective means of safeguarding jobs during the toughest months of the pandemic.

So far, the impact of the coronavirus crisis on house prices has been relatively moderate due to their high inertia in changes of cycle. According to the statistics published by the Ministry of Transport, Mobility and Urban Agenda (based on appraisal prices), house prices rose by 0.6% quarter-on-quarter in Q3 2020, interrupting the downward trend of the previous two quarters. In year-on-year terms, the decline in prices slowed down (–1.1% year-on-year versus –1.7% in Q2), while the College of Registrars’ price indicator (based on repeat sales) recorded a 0.2% quarter-on-quarter drop in Q3 2020. Although the year-on-year trend is still positive (0.8%), this indicator shows a marked slowdown compared with the 7.3% year-on-year increase recorded in Q3 2019. INE house prices (based on transaction prices) also slowed down, from 3.2% year-on-year growth in Q1 to 2.1% in Q2, but this indicator has yet to post a decline in quarter-on-quarter terms. INE data suggest that prices for new builds are outperforming those for second-hand housing. Specifically, the price of new housing rose by 4.2% year-on-year in Q2 2020 while the price of second-hand housing rose more moderately by 1.8%.

Another indicator that is particularly relevant in situations of high uncertainty such as the present is the time it takes to sell a property, as this can point to buyers and sellers finding it more difficult to agree on the new equilibrium price for transactions. The various indicators available on real estate portals suggest a slight increase in the time between a property going on sale and the date it is purchased. According to data from the Idealista portal, it took about six months to sell a house in Q3 2020, almost one month more than a year earlier.⁶

Consequently, in spite of the relatively moderate decline in house prices to date, we still predict a somewhat sharper correction in the latter part of 2020 and first half of 2021. The revival in economic activity expected from spring onwards should support a gradual recovery in house prices in the second half of 2021. However, the far-reaching economic crisis caused by COVID-19 will make this recovery very gradual, so we do not expect prices to return to their pre-crisis levels until 2024.

In this article we examine the forecasts of house prices for 2021 at the level of province, obtained from the machine learning models of CaixaBank’s new real estate big data tool. The tool combines millions of internal CaixaBank data with reliable external sources of information. This enables the application of machine learning algorithms, which improve the forecasts as more information is available. The Ministry of Transport, Mobility and Urban Agenda’s historical series of house prices has been used to train the models, based on free housing appraisal prices. Most of these data come from appraisals of properties more than 5 years old, so the house price forecasts in this article largely reflect trends in the second-hand property market.

Expectations regarding the trend in Spanish house prices have altered extensively as a result of COVID-19. If we compare the distribution of house prices projected by the models one year ago (October 2019) with the most recent projections (October 2020), we can see a shift in the price distribution to the left. In other words, the models are currently projecting significantly lower house prices than those forecast a year ago.

Specifically, in October 2019 the models predicted that house prices would rise in one year’s time in almost all provinces, with an average increase of 3.5%. The highest rises were expected in the provinces of Valencia (+7.4%), Navarra (+6.5%), Zaragoza (+6.5%) and Madrid (+6.4%). And only four provinces were projected to see a decline: Ciudad Real (–1.4%), Zamora (–1.3%), Palencia (–0.8%) and Ávila (–0.3%).

In October 2020, the models forecast that, in one year’s time, house prices will have fallen in 7 out of 10 provinces. However, the models still project price increases in almost one third of Spain’s provinces, albeit a much more moderate rise than predicted a year ago, particularly in Malaga (+2.0%) and Madrid (+0.8%).

It is therefore evident that the downward adjustment of forecasts over the past year has been widespread and considerable. In particular, the house price growth forecast over a one-year horizon has been lowered by about 4 pp between October 2019 and October 2020.

The greatest adjustment in forecasts between October 2019 and October 2020 has been in the urban provinces.¹ While, one year ago, the models predicted a 5% revaluation on average in house prices over a one-year horizon for the urban provinces, they now predict a slight fall in prices between Q3 2020 and Q3 2021 (–0.2% on average). In contrast, rural provinces have seen a significantly smaller adjustment in their house price projections (about 3 pp in the past year). However, as these real estate markets were already much less dynamic before the pandemic (one year ago, an average increase in house prices of 1.2% was projected for rural provinces), the change in expectations has led to notable decreases in house price forecasts for most rural areas (–2.0% on average between Q3 2020 and Q3 2021).

A similar pattern can be observed if we divide the provinces into two groups according to their degree of dependence on foreign tourism. Specifically, we consider a province to be dependent on foreign tourism if more than 10% of CaixaBank’s POS terminal transactions in the province in 2019 were carried out with foreign cards.²The result is that the house price forecast for tourism-dependent provinces has altered considerably in the past year: from an average one-year growth rate of 4.7% projected in October 2019 to the current forecast of –0.4%. On the other hand, less tourism-dependent provinces have seen a smaller adjustment in their house price forecasts over one year, although these are precisely the provinces with the largest fall in prices projected for the coming year.

Barcelona province and the Community of Madrid concentrate a large part of real estate activity and it is therefore important to look at these in greater detail. The following chart shows the trend in house prices since 2005, together with the model’s forecasts made in October 2019 and October 2020. The correction is obvious, as summarised below:

• In Barcelona province: in October 2019, a 5.5% price increase was projected. Currently, the model predicts a price drop of 1.1% over one year. Expectations have therefore adjusted considerably (6.6 pp).
• In the Community of Madrid: in October 2019, a 6.4% price increase was projected. Currently, the model predicts a very moderate increase in price over one year, namely 0.8%. Expectations have therefore adjusted less than for Barcelona but the change is still significant (5.6 pp).

Finally, it is also useful to look at the trend in the forecasts month by month as this reveals how the model learns and recalibrates its forecasts as new data become available. The following chart shows an initial shift in forecasts in March 2020 with the arrival of COVID-19 and a second shift in June 2020 with the incorporation of Q2 2020 data, indicating the first year-on-year fall in house prices (the target variable for our forecasting models).

These results show the great potential offered by models combining big data with machine learning to predict future trends in Spain’s real estate market. This information is particularly important in a situation such as the present, when high uncertainty regarding developments in the pandemic and its impact on the economy requires us to continually re-evaluate our forecast scenario in order to be able to make more informed and accurate decisions.

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

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 (%)

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.

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.

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.

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.

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 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 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.

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.

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.

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.

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

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.

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.

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.

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.

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).

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.

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.

In this report we analyse in detail the impact of COVID-19 on three specific aspects of the tourism industry. First, we focus on the performance of the aviation sector, which is experiencing huge difficulties due to global border restrictions. We have also examined the price adjustments observed in the tourism industry, especially by the hotel sector, showing that the extensive price cuts carried out were relatively ineffective in boosting demand. Finally, we have also studied the performance of rural tourism in 2020, using big data methodology. In this case, rural tourism has provided some good news in the past year thanks to its more appealing features – social distance, tranquillity and nature – after the tough lockdown suffered in the second quarter of the year.

The outlook for 2021 is more optimistic. The great effectiveness of the vaccines and their roll-out over the past few months, albeit at very different rates across different countries, suggest that tourism in Europe could start to recover in the second half of the year. Nevertheless, this recovery is not without its risks, especially in the short term. After managing to contain the third COVID-19 wave in Spain, we are already seeing some neighbouring countries beginning to report a rise in the number of infections. It is important for the virus to be kept under control in Spain and, if possible, also in Europe to enable the sector to embark on its recovery as soon as possible, preventing losses from continuing throughout the spring and the start of the summer season.

The key rolling target for the sector's recovery is the vaccination of the population aged over 60, which we refer to as the population at risk. This group accounts for only 20% of the infections but for two thirds of hospitalisations and 95% of the deaths caused by the virus. We expect the vaccination rate to continue accelerating week by week and, by the end of May, almost 90% of the population at risk should have been immunised. This would significantly contain the pressure on hospitals and open up the possibility of easing restrictions on mobility.

In this scenario, we expect spending by international and domestic tourists in Spain to improve considerably compared with 2020, albeit still considerably below the 2019 level. We therefore predict tourism GDP will increase by around 80% in 2021; a good figure but still 40% below its pre-COVID level. In the medium term, vaccines should provide a definitive way out of the situation experienced by the sector, consolidating its recovery and its role as one of the driving forces for the Spanish economy.

2020 has been a tough year for the tourism industry. All the data that have become available at year-end show that the impact on the sector has been devastating. Moreover, this impact was not only due to the total standstill experienced during the toughest months of lockdown in Q2 2020 but also because, after the strictest limits on movement were withdrawn, tourism demand did not pick up appreciably for the rest of the year. In addition, the waves of COVID-19 occurring at the end of last year and the beginning of 2021 have dealt a hard blow to the sector, with demand remaining very weak up to the present.

Examining the 2020 figures provided by the National Statistics Institute, summarised in the charts below, it is clear that the tourism industry has suffered an unprecedented shock. Expenditure by international tourists for the year as a whole plunged to €20 billion, down 79% from €92 billion in 2019. Even during the best tourist months after the start of the pandemic, namely July and August, the falls in international tourist expenditure remained at around 80% year-on-year.

Data from hotel and non-hotel occupancy surveys reveal that tourist accommodation is one of branches in the industry that are suffering the most from the consequences of the pandemic.¹ Total tourist overnight stays in hotel and non-hotel accommodation fell by 69% year-on-year, despite the better performance of domestic demand in relative terms. The hotel occupancy rate remained very low for the year as a whole (with an annual average of 26%), dragging hotel revenue per available room down by 68% annually.

Figures for the tourism industry in 2020

One of the few positive notes in the 2020 figures is that domestic demand has proved to be a powerful support for the industry when movement restrictions are eased. Nevertheless, domestic tourist expenditure has also fallen sharply, especially since last October when the autonomous regions began to restrict movement to within their borders, limiting almost all domestic tourism. According to our estimates, domestic tourist expenditure fell by 45% in 2020, considerably less than international tourism. Domestic demand, which traditionally accounts for a quarter of the total, therefore generated 64% of the overnight stays after the outbreak of COVID-19. It is also worth noting that, during August when movement was not so restricted, spending by domestic tourists only fell by 13% year-on-year. This paints a relatively positive picture for the second half of 2021, by which time the population at risk should have been vaccinated and restrictions on movement will begin to be withdrawn.

Tourist expenditure in Spain

At present, the state of the tourism industry is extremely volatile. For this reason, it is of vital importance to have an analysis of the situation that is as up-to-date as possible, in spite of the delay in publishing official statistics. To this end, we carry out a real-time analysis, using big data methodology, of the card payments made via CaixaBank's point-of-sale (POS) terminals. 

According to our indicator, the beginning of the year has been severely affected by the third COVID-19 wave in January and part of February and the tightening of restrictions to combat this. More recently, the data point to an incipient upswing in the turnover of some tourism businesses following the easing of restrictions on hospitality in many autonomous regions. As suggested by CaixaBank's POS card expenditure data for the first half of March, the POS turnover of tourism-dependent retailers was still 52% below the level recorded during the same period in 2019. In this respect, it is worth noting the continuing sharp drop in POS turnover for accommodation and travel agencies, down by 83% and 91%, respectively. On the other hand, restaurant business POS terminal expenditure, which has suffered considerably from measures to contain the second and third waves of COVID-19, has picked up notably in recent weeks, going from drops of 40% at the end of January compared to the same period in 2019 to a fall of «just» 12%.²

The improvement in the conditions observed for the food and drink industry, mainly in restaurants and bars, has led many businesses in this branch to reopen their doors in recent weeks, something that could be very important to recoup the jobs lost. To track inactivity in real time, we have calculated the proportion of businesses that have gone from recording payments via their CaixaBank POS terminals in 2019 to recording no activity in 2020 and 2021.³ As can be seen in the chart, according to this indicator the proportion of inactive bars and restaurants during the second week of March 2021 stood at 7%, 10 pp lower than at the end of January 2021. For its part, tourist accommodation reported 33% of inactive businesses, a very high level although significantly better than the situation observed at the end of January.

Proportion of businesses with no CaixaBank POS terminal payments*

% of total

Looking ahead to the coming months, the outlook is not positive. If we analyse Google searches for trips to Spain carried out in our main source markets, we can see that interest is still low and, therefore, the prospects for foreign arrivals in the short term are moderate. As can be seen in the chart, according to our analysis searches by international tourists were 53% below the benchmark level. However, tourism will depend on how the pandemic evolves and it is to be expected that, once we are able to ease restrictions on international travel, interest will pick up rapidly. Consequently, the experience after the coordinated withdrawal of EU border restrictions in June 2020, when the interest of tourists in travelling to Spain went from 60% below the benchmark to just 5%, revealed that European tourists still want to travel in spite of the restrictions and, in 2021, if these restrictions are eased, the interest in travelling to Spain will pick up. Of particular note is the sharp rise in Google searches in mid-March 2020, the result of internet users' interest in the border restrictions introduced as a result of the first state of emergency.

It is vitally important to prevent a fourth wave of infections. Otherwise, the sector could once again suffer a situation similar to that experienced at the beginning of the year, when turnover fell by around 70% for several weeks. At the time of going to press, the situation in the main European countries remains very delicate and there has been another spike in the number of daily infections, indicating there is still a high risk of outbreaks in Europe.⁴

The rapid distribution and administration of vaccines is a key factor for the recovery to begin in the tourism sector and the economy as a whole. According to the European Commission's target reflected in Europe's vaccination plan, 80% of health workers and the population aged over 80 should have been vaccinated by the end of March, while the target of vaccinating 70% of the adult population, which should bring about herd immunity, has been set for the end of September.⁵

Although there have been delays in distributing the vaccines, the September target is likely to be met. In March, the average vaccination rate for the Spanish population was around 1.1 million doses per week. As can be seen in the table, this rate needs to be speeded up by at least 40%, up to 1.5 million doses per week, in order to achieve the target of herd immunity by the end of the summer. While this is a significant increase, it is nevertheless feasible considering the following: in the last month, Spain's vaccination rate has already risen by 45%, the safety of the AstraZeneca vaccine has been confirmed and the first supplies of the Janssen/J&J vaccine arrived in April.

In the short term, the key for the tourism sector is to immunise the over-60s before the summer. This group accounts for just 20% of the infections but two-thirds of the severe cases of COVID-19 and nearly 95% of the deaths. Increasing the vaccination rate to 1.5 million doses per week would achieve immunity for 90% of the population at risk by May. Once this milestone has been reached, the pressure on hospitals would noticeably ease and COVID-19 containment measures could be relaxed, helping to substantially improve the movement of both domestic and international tourists.

Table of vaccination rates for the population aged over 16

Millions of weekly doses

Given that this first milestone looks likely to be reached, CaixaBank Research expects tourism expenditure to recover strongly as from the second half of the year. Specifically, our scenario is based on the hypothesis that the restrictions on movement and business will start to ease considerably from May onwards, when a significant part of the population at risk will finally be immunised, and that a further move towards normalising the situation will be possible in September, once herd immunity is achieved. Similarly, the introduction of the health passport from June, as proposed by the European Commission, will make it easier and encourage people to travel during the summer season.⁶ Also, the rapid (albeit brief) improvement in tourist flows during the months of July and August in 2020, when movement was permitted but social distancing measures were still in place, suggests that tourism will recover strongly once restrictions on movement in Europe are eased.⁷

Based on these three assumptions, and acknowledging there is still a great deal of uncertainty surrounding our scenario, we expect international tourism expenditure in 2021 to increase 2.3 times compared with the 2020 levels, leaving it 45% below the 2019 levels. As for domestic tourist expenditure, we expect this to grow by 30% year-on-year, 25% below the 2019 figure (–45% in 2020). As far as the summer season is concerned, the outlook is relatively positive: we expect international expenditure to limit its decline compared with summer 2019 to 27% while, in the case of domestic tourism, the drop is expected to be 16%.

As a result of these spending figures, we expect tourism GDP to be about 40% below its pre-COVID level in 2019, a recovery of 80% compared with 2020.⁸ This recovery would directly contribute 1.9 pp to the growth of Spain's economy. Although there is still a lot of uncertainty regarding 2022, the progress being made by the vaccination roll-out invites us to remain positive. We therefore believe that the population's herd immunity will help normalise the movement of tourists in Spain and Europe. In this case, the sector would regain a level of activity that is still below but closer to those of 2019, in any case enough to ensure the profitability of the businesses that make up the tourism industry.

Although the sector's long-term sustainability is beyond doubt, the role played by the government will be crucial during the period of gradual recovery that still lies ahead. It is therefore important to highlight the importance of economic policy in 2021 as a whole, which must continue to adapt rapidly and effectively. In this respect, we believe the furlough scheme should be extended until the recovery consolidates. It will also be important to take advantage of the flexibility provided by the extension of ICO bonds and their grace periods. Moreover, the direct aid received by the sector will be very useful to ensure the survival of businesses that will become profitable once people can travel again. Consequently, the 7 billion euro package launched by the central government and the funds available to boost solvency (the 10 billion managed by SEPI plus the 4 billion accompanying direct aid in the last package) are a move in the right direction. Finally, the Next Generation EU (NGEU) funds will also be important when it comes to supporting improvements in digitalisation, sustainability and infrastructures, investments which are currently difficult for such a hard-hit tourism industry to undertake but vital in order to survive this crisis whilst maintaining our status as the most competitive tourist destination in the world.

• 2020 has been a very tough year for the tourism industry and the start of 2021 has not been any easier due to the impact of a third COVID-19 wave.
• In the second quarter of the year, containing the infection rate, vaccinating the population at risk and implementing the European health passport should all support a rapid recovery in the industry for the remainder of 2021.
• Our forecasts are for tourism GDP to recover by 80% this year, placing economic activity in the tourism industry at about 40% below its 2019 level.
• We expect a strong recovery over the coming years thanks to travel returning to normal once herd immunity is achieved. Tourism will continue to be one of the driving forces of the Spanish economy.
• Although the recovery is imminent, support by economic policy will remain crucial in the short term.

Rural tourism has emerged as one of the alternatives for both domestic and international tourists during 2020. During the summer months, those regions with a relatively large share of rural tourism, such as Asturias, Cantabria and Navarra, recorded a smaller decline in the number of overnight stays by domestic tourists, while the region that suffered the most was the Community of Madrid, Spain's main urban destination along with Barcelona. In fact, overnight stays in rural tourist accommodation barely decreased in the months of July and August, specifically by 12% year-on-year, while total tourist accommodation recorded a drop of 60% year-on-year.

However, the overnight stay data provided by the National Statistics Institute only allows us to analyse tourist movements and we cannot assess the likely changes in tourist consumption habits in 2020. For a broader analysis, we have used data on card payments and cash withdrawals via CaixaBank POS terminals and ATMs. Specifically, we have focused on the payments made with tourists' cards, eliminating all spending by local consumers from the sample.¹ We have also classified all the municipalities in Spain as urban, rural or coastal² in order to analyse the tourist expenditure in the different types of destinations.

According to this analysis, rural tourism accounted for about 10% of total tourism expenditure in 2019, of which only 3 pp was due to spending by international tourists. In 2020, on the other hand, the better performance of rural tourism compared with the rest of the sector increased this share to 14%. This is an appreciable portion of total expenditure, in line with the percentage of the population residing in rural municipalities, which is also 14%. As can be seen in the chart, tourism in coastal municipalities, which could be classified as the most traditional destinations for the tourism industry, accounted for 58% of total expenditure in 2020. In addition to being the most important, this was also the type of destination that attracted the highest proportion of foreigners last year, with 55% of expenditure in coastal destinations made via foreign cards. Finally, urban destinations accounted for 28% of total tourist expenditure in 2020.

If we look at the trends in tourist expenditure in 2020, spending by all tourists (domestic and international) identified via their card payments and cash withdrawals at CaixaBank POS terminals and ATMs fell by 51% in 2020.³ By type of destination, tourist spending fell by 46% annually in cities and by 56% in coastal destinations. In contrast, tourism expenditure in rural destinations fell considerably less (31% year on year) thanks to a much faster recovery in the period when the lockdown restrictions were eased and also because it remained more attractive in terms of social distancing during the months of the summer and early autumn.

As can be seen in the chart, in January this year, the latest month for which we have a detailed breakdown at the time of going to press, the decrease in tourist expenditure was very similar across all destination types: between 51% and 58% year-on-year. This is due to the fact that restrictions on movements have affected the autonomous regions to a similar extent during the second and third waves, in many cases prohibiting travel between regions (and even within the same region), thereby preventing tourists from crossing regional borders.

The greater resilience shown by rural destinations during 2020 was not enough to cushion the huge impact of COVID-19 on Spain's tourism sector, due to their small share within the tourism industry overall and because tourist numbers also declined appreciably for rural destinations. Nevertheless, this has played a very important role in terms of the geographical scope of the impact. Although rural tourism accounted for 14% of the total in 2020, 15 Spanish provinces recorded more than 40% of their tourism expenditure in rural municipalities. In these provinces that are more dependent on rural tourism, total expenditure fell by 33% annually, 17 pp less than the average for Spain. In comparison, the predominantly urban and coastal regions have been harder hit by the COVID-19 pandemic. In the 9 provinces with less than 5% of rural tourism, tourist expenditure fell by 60% (9 pp more than the average for Spain).

Share of rural tourism in Spain

Tourism expenditure in non-urban municipalities as a percentage of total tourism expenditure

If we look at the trends in tourist expenditure by type of destination and business, we can see that all types of businesses located in rural municipalities recorded smaller decreases in turnover from international and domestic tourists. Firstly, the tourist accommodation establishments (hotels and non-hotels) located in rural municipalities were much less affected by the crisis in 2020. As shown in the table, rural tourism expenditure fell by 44% annually while the decrease was 76% and 79% for urban and coastal destinations, respectively. A similar situation can be seen in spending on food and drink, one of the sectors that has been hardest hit by the consequences of COVID-19 in major tourist destinations, with tourist expenditure falling by more than 55% annually in urban and coastal destinations but falling by 27% in rural destinations. However, it is worth noting that the decrease in tourist expenditure in rural destinations was also considerable, albeit not as severe as in the rest of the destinations.

Trends of tourist expenditure in 2020, by type of destination and business

Annual change

• CaixaBank's internal data show that the impact of COVID-19 on rural and inland tourism has been notable but more moderate than in other tourism destinations. Tourists have largely opted for less crowded and relatively tranquil destinations, with rural tourism reigning supreme. 
• In 2021, rural tourism will also be one of the driving forces of the recovery as its growth will not be so restricted by the social distancing requirements in place during the first few months of returning to normal, while the population's immunisation will still be incomplete.
• In the medium term, the two major destinations for post-COVID tourism will still be coastal and urban locations. However, COVID-19 may notably speed up changes in the economy, with rural tourism gaining in importance. 
• The initiatives supported by the European Recovery Plan (NGEU) to digitalise and modernise Spain's tourism supply could particularly boost destinations that are currently less wellestablished, including rural ones, helping Spain's tourism supply to diversify and thereby maintain its competitive edge over the rest of the international markets.

Spain's excellent performance in terms of its international tourism in recent years would not have been possible without the work of the airlines, which have managed to increase connectivity between destinations at highly competitive prices. So much so that tourist expenditure on passenger transport, with air travel making up the largest share by far, accounts for a sizeable 11.2% of all tourist expenditure, as can be seen in the chart. Given the importance of air travel for tourism, it is not surprising that, in the current crisis in the sector, airlines lie at the epicentre of the economic impact caused by the measures implemented to combat the spread of COVID-19 around the world.

The current situation of airlines is devastating all over the world. By February 2021, 16% of all countries had closed their borders while 65% had imposed selective entry restrictions or quarantine measures on arrival.¹ This, combined with the huge share repre-sented by international connections in the industry, has meant that, according to data from the Official Airline Guide (OAG), the number of scheduled flights worldwide in January 2021 was almost 50% lower than in January 2020. By region, we can see that EU countries and particularly the United Kingdom are the worst performers, with year-on-year falls in January of 66% and 83%, respectively. The US market, also hard hit by COVID-19, fell by 44% in January, still very high but much less than the decline recorded by European countries, thanks to the support offered by its domestic market. Countries such as Japan, Korea and Australia are in an intermediate situation. In their case, the volume of domestic flights has recovered relatively better but international flights have slumped significantly as these countries have controlled the spread of the pandemic by implementing very tough border restrictions. China is a case apart, with a very large domestic air transport market and where, thanks to its low COVID-19 infection rate, its air traffic has managed to recover almost entirely.

Scheduled flights  

Year-on-year change (%)

The decreases are extensive and very similar within the European market. According to data from EUROCONTROL, responsible for coordinating the continent's national air traffic control agencies, last January all Western European countries suffered year-on-year falls of between 55% and 80% in the volume of commercial flights. As can be seen in the chart, the five main European markets (Spain, Italy, Germany, France and the United Kingdom) recorded a volume of daily flights at the end of January that was very similar to the end of June. This is a remarkable development, since none of these countries had opened their borders before 15 June.

Such poor figures have placed the airline industry in a highly complex financial situation. Airlines tend to be very capital-intensive, heavily structured companies with high costs that find it difficult to adjust in the short term. The airline market is also extremely competitive. For this reason, margins are small and airlines need to maintain a large customer base and high aircraft occupancy rates to make a profit. According to estimates by the International Air Transport Association (IATA), industry revenue declined by 66% by 2020 due to an 80% drop in passenger revenue and despite freight revenue growing by 17% year-on-year. On the other hand, operating costs (fuel consumption, logistics, maintenance and salaries) fell by 43% due to the decline in the number of operations and various furlough schemes implemented. Losses have been widespread, with the profit margin on global sales going from 11% in 2019 to -45% in 2020.²

Under such conditions, the industry has had to resort to extraordinary measures to increase its liquidity and raise capital. According to IATA data from the balance sheets of its nearly 290 member airlines, industry borrowing increased by 51.4% in 2020 via bond issues and bank and public sector loans.³ In terms of the part played by governments in supporting the sustainability of airlines, notable cases in Europe have been Air France-KLM, receiving €11 billion in credit and guaranteed loans from the French and Dutch governments at the end of April, and Lufthansa, receiving a capital injection of €9 billion from the German government in May 2020, increasing its stake in the company to 25%. In Spain we have also seen the bail-out of Globalia, the parent company of Air Europa, through two loans convertible into equity totalling 475 million euros, granted by SEPI at the end of October.

This situation has also been reflected in airline share prices. As the chart shows, the market capitalisation of Europe's major airlines declined by more than 50% between March and November, although share prices rallied slightly once a vaccine was announced. Only Ryanair has a higher capitalisation than on 1 January 2020.

Market capitalisation of the major European airlines

Change compared with 1 January 2020

Volume of flights at Spain's main airports

Arrivals

The case of Spain's airline industry is not unique. As in the rest of Europe, after the pandemic started in March 2020, passenger air travel came to an abrupt halt. According to data from the Ministry of Transport, Mobility and Urban Agenda, the volume of passengers at Spanish airports went from 274 million in 2019 to just 73 million in 2020 (–73% annually), dropping to levels similar to those in 1990. Moreover, the most recent figures show no improvement: in January 2021 the number of passengers in Spain fell by 85% year-on-year.

If we look at the trends for Spain's main airports, as shown in the chart, three conclusions can be drawn: (i) the slump in activity is widespread throughout Spain, (ii) those destinations preferred by domestic tourists have fared relatively better, and (iii) the Canary Islands have been more successful than the Balearic Islands in attracting domestic demand. Madrid, Spain's main airport thanks to its role as a hub between international and domestic flights, recorded a drop of more than 65% year-on-year in the second half of 2020. For their part the airports of Barcelona and Alicante, both located in very popular destinations for international tourism, have seen the sharpest decline in the last quarter of 2020. On the other hand, airports such as Seville and Bilbao, with a larger share of domestic flights, have also posted large decreases, albeit more moderate.

• Given the numbers discussed in this article, the airline industry is currently looking very vulnerable. We believe a recovery in travel is vital in 2021 to bring recurrent income back to companies in the sector, thereby avoiding greater restructuring. 
• However, such a recovery obviously depends on the effectiveness and speed of the vaccination roll-out. Achieving immunisation of around 90% of the population at risk in Europe and the approval of a health passport to enable vaccinated people to travel before the peak summer season will be key to turning the tide for the sector this summer.
• However, in spite of the expected improvement, the industry will still be under pressure. According to IATA forecasts, in 2021 airline revenue will remain at around 40% below pre-COVID levels and negative cash flows will continue until Q4.

The law of supply and demand is very clear: if demand decreases and supply remains the same, prices fall; if supply falls and demand stays the same, prices go up. But 2020 was a year in which both these movements took place. On the one hand, tourist demand fell sharply, even during the summer months when movement restrictions and infection rates were very low. On the other hand, severe restrictions were imposed on hotel capacity, which considerably limited the number of tourist places available in hotels and the number of customers that could be served in restaurants.

According to economic theory, the reduced capacity experienced during the second half of 2020 should have limited price reductions in many establishments. However, the slump in tourist demand was so severe that most businesses and shops that depend to some extent on tourism lowered their prices in the hope of reviving demand.¹

According to data from the consumer price index (CPI), the largest price cuts after the March-June lockdown in 2020 occurred in the rates charged for tourist accommodation, highly dependent on demand from international tourists. During the second half of 2020, the prices for this type of business fell by an average of 18% year-on-year. Big cuts were also observed in the price of international and domestic flights, with year-on-year decreases of 14% and 3%, respectively, something quite remarkable in a sector where margins were already very tight before the pandemic.² However, it should be noted that not all tourism-dependent businesses lowered their prices. This was the case for food and drink establishments which, in spite of suffering from a drop in turnover, were able to replace some of their tourist clientele with local customers, on average pricing their goods and services 1% above 2019 levels.

The big reductions in tourist accommodation prices were not homogeneous throughout Spain as a result of the diversity within the tourism industry itself. Some of the factors that explain the different impact in different areas are the composition of tourism demand, changes in tourist preferences after the outbreak of the pandemic and notable differences in pre-COVID prices between regions. As can be seen in the chart, there are clear differences in hotel prices between autonomous regions. One of the main determining factors for these differences is the relative share of international demand, tourists who traditionally have more purchasing power, compared with the share of domestic tourism demand, who tend to prefer more moderately priced destinations. Accordingly, in the Balearic Islands, an eminently international destination, the average daily rate (ADR) for a hotel room was 123 euros during the summer months, while the Principality of Asturias, a destination whose tourism is much more focused on domestic visitors, had an ADR of 70 euros, more than 40% lower than the Balearic Islands.³ It is therefore to be expected that those autonomous regions with the highest prices, also the most urban and international, should be the ones undertaking the largest price adjustments. 

Share of foreign demand and hotel prices in the autonomous regions in 2019

Consequently, the autonomous regions that cut their prices the most during the summer months of 2020 were Madrid (–34.8% year-on-year), the Basque Country (–24.0%) and Catalonia (–20.2%), where Spain's main urban destinations are located. On the other hand, the Balearic Islands (–5.1%) and Canary Islands (–3.4%), two destinations that have been harder hit due to their dependence on foreign tourism, did not opt for such an aggressive strategy. Finally, in Asturias (+6.0%), Extremadura (+1.2%) and Aragon (+0.8%), three autonomous regions with a larger relative share of coastal and (less crowded) inland rural tourism that are traditionally more dependent on domestic tourism, did not choose to reduce their prices, taking advantage of their competitive edge in terms of social distancing.

Decline in hotel prices in Q3 2020

Year-on-year change in ADR

During the past decade, the growing demand for tourism in Spain has pushed up prices in the sector year after year. Despite this, Spain has remained competitive compared with other international destinations as its tourism industry has improved the quality of its services and has taken maximum advantage of the country’s appeal (in terms of culture, climate, hours of sunshine, etc.). This situation was completely reversed in 2020. The absence of tourists took the pressure of demand off prices and pushed suppliers to make large adjustments in order to become more attractive and stimulate consumption.

One of the questions that arises after seeing these large price cuts is whether it was an appropriate strategy which attracted a larger share of the tourists travelling through Spain. On paper, such a strategy was logical given the drop in demand. However, the situation in 2020 was so unique that it raises the issue of whether tourists’ decisions were really mostly price-driven. One highly plausible hypothesis is that the few international tourists who came to Spain and did not have a second home in the country (i.e. who stayed at hotels, tourist apartments, campsites, etc.) were loyal consumers who choose the same destination year after year in Spain. As for domestic tourists, it is likely that relatives and nearby destinations also prevailed. If so, the relationship between demand and price was not so strong in 2020, reducing the effectiveness of price cuts.

To test this hypothesis, we have performed a series of quantitative exercises to estimate the price sensitivity of demand in the different channels. First, we calculated the correlation between the annual changes in ADR and the market shares of international and domestic tourists in the autonomous regions. The result is an almost zero correlation, suggesting that hotel price reductions did not manage to improve the percentage of tourists received by each region in 2020. After carrying out a more sophisticated analysis to estimate the price elasticity of demand, the results point in the same direction. As can be seen in the chart, according to our estimates hotel demand was highly inelastic in 2020 and did not respond significantly to the price changes carried out by a large number of hotel establishments. In contrast, we estimate that hotel demand was elastic between 2010 and 2019, with a price elasticity of 1.3, implying that a 1% reduction in hotel prices would result in an increase in tourist overnight stays of 1.3%.⁴ This shows that special offers and price cuts were clearly attractive before the outbreak of the pandemic. However, estimates suggest that, in 2020, the price cuts carried out in some regions did not significantly attract a larger proportion of the low tourism demand.

Effect of a 1% cut in hotel prices on overnight stays

Change (%)

• The collapse of tourism in Spain in the wake of COVID-19 has pushed the tourism industry to undertake major price adjustments. The hotel sector has been the leading exponent of this trend and, in some regions of Spain, has applied a very aggressive pricing strategy in an attempt to capture as much of last year's dwindling tourist demand as possible. 
• Despite this, due to the changes undergone by tourism in 2020, the strategy of cutting prices has proved to be ineffective and the gains have been minimal in those regions where prices have been lowered the most. Tourists seem to have considered other factors over and above price, such as proximity and whether they are already familiar with the destination.
• Nevertheless, prices are likely to remain low in 2021, as tourism will have only recovered in part by the summer and there will still be a great need to attract demand among those businesses that are most dependent on tourism. 
• Greater safety when travelling, thanks to the fact that part of the population will be vaccinated, may lead to a price adjustment strategy being more successful this year. We can only wait and see whether this situation will come about and, in the meantime, take advantage of the low-price environment to help to revive tourism ourselves.

Retail accounts for 4.2% of GVA,¹ making it an extremely important sector for the Spanish economy and one that has been growing strongly in recent years (+3.2% per year on average between 2014 and 2018). Moreover, its importance is slightly greater than in other European economies with a similar economic structure (3.9% in Germany and France and 3.5% in Italy) and also compared to the EU average (3.9%).

This is a particularly labour-intensive sector: in Spain it employed 1.7 million people in 2018; i.e. 9% of the total number of employees, more than double its contribution to GVA. Once again, the proportion of people employed in retail out of the total number of employees in the country is higher than that of the region’s major economies (between 8.7% and 8.1% in the case of Germany, France and Italy) and is also above the EU average (8.4%). It is also a sector that generates opportunities for female entrepreneurship: more than 50% of the firms incorporated in the sector are led by women.

However, its job opportunities have gradually decreased in recent years, due to the progressive penetration of e-commerce and the lasting effects of the recession; since 2008, retail has accounted for 5% of the jobs lost in Spain, twice as many as the economy as a whole over the same period.

Spain’s retail trade is an atomised sector. It was made up of almost 436,000 firms at the end of 2020, around 13% of the Spanish business fabric. Each company in the sector has 1.3 establishments on average, representing just over 550,300 establishments. These figures have been falling steadily in recent years: since 2010, the number of retail firms has fallen cumulatively by 14% and the number of establishments by 11%. This suggests that the financial crisis of 2008 caused more business concentration in the sector than the closure or disappearance of physical premises.

In this respect, the sector’s size in terms of companies is moving towards the European average (around 14% of Europe’s business fabric) and the most similar countries to Spain (13% in Germany, 15% in France and 16% in Italy). The annual data available for 2020 do not show any particular destruction of Spain’s retail business. despite the impact of the health crisis due to COVID-19. There is no doubt that the aid put in place to alleviate the impact of the mobility restrictions (in the form of guaranteed lines of credit, rebates on tax and the rental of premises, as well as furlough measures) have helped to minimise the drain on a sector hit hard by the restrictions (especially the subsectors of textiles and fashion and hospitality).

It should be noted that Spanish retail is dominated by food, beverage and tobacco establishments (21% of the total companies in the sector), followed by household goods stores (15%, including clothing, furniture and electrical goods, among others) and finally by non-specialist establishments (12%).

In terms of the number of employees, the retail sector’s business fabric is essentially made up of companies without salaried workers and micro-SMEs. According to the annual Company Structure Statistics produced by Spain’s National Statistics Institute, half the firms in the sector do not employ salaried staff; while 48% of the total have a workforce of between 1 and 10 people on their payroll. However, it should be noted that, in terms of turnover, the large companies in the sector (250 employees or more) account for the biggest share of turnover in the retail sector as a whole (35% of the total). In recent years, with the number of companies progressively falling, the largest drops have been concentrated among companies with fewer than 20 workers, while the number of firms with more than 1,000 workers has increased by 10% since 2008.

The retail sector is very much present throughout Spain. A regional comparison shows that three autonomous regions stand out from the rest: Andalusia, Catalonia and Madrid. Andalusia is the region with the largest number of establishments (18% of the total), while Madrid accounts for most of the sector’s national turnover (26%) and Catalonia has the largest number of employees (18% of the total).

However, the situation changes significantly if we take into account the sector’s relevance in each region, measured by the share of retail firms in each area’s business fabric. It can be seen that the presence of retail trade across regions is relatively homogeneous, so it could be said that it is widespread throughout the country. In this case, the sector is relatively more important in Extremadura (18% of its business fabric), Andalusia (17%) and Castilla-La Mancha (16%), as well as Ceuta and Melilla (over 25%). On the other hand, Madrid (9.6% of the region’s business fabric), the Balearic Islands (11%) and Catalonia (11.3%) would be the regions where retail is less relevant as a business.

The traditional economic indicators suggest that retail is still far from its pre-COVID levels of business. Activity in the sector recovered strongly after a difficult period during the worst months of the pandemic, when people were under a strict lockdown and turnover fell sharply. According to the most recent figures from the National Statistics Institute’s turnover indicator, the turnover of retail companies was 6% below pre-crisis levels in February 2021.² This is a considerable decline although it is noticeably smaller than the drop in the general turnover index (all industrial and non-financial service companies) which, in February 2021, fell by 18% compared with its pre-COVID level.

Despite these figures for the sector’s average, there are differences between turnover between large and small retailers. As can be seen in the chart below, according to data from the retail trade index, large chains and supermarkets (large stores in both cases) have regained their pre-COVID-19 level of sales. On the other hand, the situation of small chains is more delicate and their business is still 13% below the 2019 average. This difference is relevant because, as we have seen above, although the bulk of the turnover generated by retail is concentrated in large companies in the sector, small retailers are very much present throughout the country (98% of the companies and 48% of the jobs). Consequently, liquidity measures and other measures to make labour costs more flexible (furlough schemes) as well as direct aid to companies have been and continue to be essential for a significant part of the retail sector to overcome the current crisis.

As far as the labour market is concerned, the sector is still feeling the impact of the pandemic. In April 2021, the number of retail workers registered with Social Security was 3% lower than in April 2019. Another perspective that helps us to gauge the sector’s labour market is the number of workers who have been furloughed. In April, 2.8% of the sector’s employees had been affected (51,941 workers), a number that has remained relatively small since August 2020. Although the sector is currently only using furloughs to a limited extent, their usefulness is beyond doubt. It is worth noting that, since the start of the COVID-19 crisis, the fall in total employees has always been around 4% while, as can be seen in the chart below, if we discount furloughed workers, the year-on-year falls in employment reached 21% in Q2 2020 (strict lockdown) and 9% in February (third wave of COVID-19).

Having looked at the official statistics, we now turn to CaixaBank’s own internal indicators for a more up-to-date and detailed view of the retail situation. Specifically, we have used data on payments made with CaixaBank cards and payments recorded via CaixaBank POS terminals to produce a consumption indicator with a weekly frequency.^3,4

The first thing highlighted by our consumption indicator is the huge difference between food stores and the rest of the retail trade. The former have benefited from an increase in demand during the pandemic thanks to the replacement of on-trade with home consumption, significantly boosting supermarket sales. As can be seen in the chart below, food consumption is still posting strong growth of 24% compared to the baseline level.⁵ In contrast, the rest of retail has suffered more from the consequences of the health crisis (with consumption falling by 80% year-on-year during the first COVID wave). Once the first wave was over, however, consumption of non-essential products has recovered strongly, except during the second and third waves of COVID-19, when restrictions on shops resumed for several weeks. Currently, non-food retail consumption is 1% below the baseline level.

If we dig a little deeper and break consumption down into the different branches of activity, great discrepancies can be observed. As can be seen in the chart below, consumption in some retail categories such as textiles and footwear, as well as in jewellery and sporting goods, decreased sharply in April, in line with what was observed in 2020 as a whole. At the other end of the scale is consumption of electronic products and furniture, posting even higher growth than the aforementioned figures for food.

CaixaBank consumption indicator by branch of activity¹

Annual change 2020 and variation compared to the baseline April 2021²

Once again, these data confirm that it is important not to analyse the sector from a global perspective as it is highly heterogeneous. In this respect, CaixaBank’s internal data have great potential to explore these discrepancies and corroborate the disparate situations across different types of consumption.

Having analysed in detail the situation of retail demand, it is now time to look at the financial difficulties that companies in the sector may be experiencing as a result of the slump in activity in 2020 and the first half of 2021.

According to data from the Bank of Spain,⁶ corporate debt in the retail sector grew by 11% in 2020. This is a very notable increase but it is in line with the pattern followed by the debt of all non-financial corporations (up 7% year-on-year). In greater detail, it is worth noting that almost all the increase in the sector’s debt was recorded in Q2 2020 (growing by 11.4% quarter-on-quarter), coinciding with the period of the biggest drop in revenue (falling by 20% year-on-year), which led to a significant need for liquidity, alleviated via debt. Most probably, the role of ICO credits was fundamental during this period to facilitate access to the liquidity required by firms encountering difficulties.

As can be seen in the graph below, once the period of strict lockdown was over, the drop in retail turnover was 5% year-on-year. Despite this fall, the sector’s debt has remained virtually flat, suggesting that, on average, retail firms had no major additional liquidity requirements.⁷

Turnover and debt of retail companies

% year-on-year change (turnover) and quarter-on-quarter change (debt)

In this respect, the data on non-performing loans are also relatively positive for the sector. At the end of 2020, the volume of non-performing loans for retail companies fell by 8%. As can be seen in the table below, the sector’s financial situation is in line with that of the Spanish economy’s non-financial corporations as a whole. This relatively stable financial situation was not the norm in 2020. If we look at the financial indicators of a sector that has been harder hit by the health crisis, such as hospitality, there is a stark contrast with the situation of retail trade.

Sector-based financial indicators for 2020

In conclusion, the data suggest that the level of income currently generated by the sector, despite being lower than before COVID-19 appeared, seems to be sufficient to meet its cost structure and maintain its activity.

One of the most striking aspects of the current crisis resulting from the COVID-19 pandemic has been the extraordinary upturn in the savings rate of Spanish households, reaching an all-time high in 2020 (14.8% of gross disposable income). In previous crises, the bulk of the increase in household savings was for precautionary reasons, a consequence of the high uncertainty that usually accompanies a recessionary period and a perceived deterioration in the future financial situation.

However, the particular features of this health crisis have forced households to accumulate savings in addition to saving as a precautionary measure. The reason is that families whose income has remained similar to its pre-pandemic level have found it impossible to maintain their usual level of consumption, especially regarding certain goods or services. According to data from the Bank of Spain’s Survey of Business Activity (EBAE), the restrictions imposed to contain the spread of COVID-19 have meant that retail sales fell by 16% in 2020, hospitality sales by 46% and leisure and cultural activities by around 26%. These falls in consumption reveal a large pent-up demand,⁸ which seems to be the result of the involuntary savings accumulated by households. Quantifying this pent-up demand via the observed increase in savings and analysing the role this will play after the mobility restrictions are lifted will be key to gauging the trend in consumption per se in 2021.

According to a study by the Bank of Spain, households accumulated about 65 billion euros more in savings than in 2019, equivalent to 5.3% of GDP in 2019. As can be seen in the chart below, it is estimated that only 0.7 points of this accumulation of savings were the result of precautionary savings due to uncertainty and the expectation of an economic crisis. On the other hand, the contribution of involuntary savings was much higher, estimated at around 3.5 points of GDP. In other words, 66% of the savings were accumulated by force. This large accumulation of involuntary savings indicates, in turn, the existence of a large pent-up demand.

Factors contributing to the increase in savings in 2020

% of GDP in 2019

Moreover, according to data available from the Bank of Spain, most of this increase in household savings is in the form of cash and deposits. While the relative weight of shares and investment funds increased last year, rising from 5% of the total net acquisition of financial assets in 2019 to 22% in 2020, cash and deposits continued to be the most popular financial savings instrument (94% of the total). These figures suggest that much of the savings accumulated by households in 2020 remains in highly liquid assets. Consequently, there is greater potential for households to lower their savings rate once the mobility restrictions are lifted.⁹

Savings instruments: net acquisition of financial assets by households

Billion euros

In this respect, once the health crisis is resolved, with the expected vaccination and immunisation of most of the population by the summer, along with a recovery in international tourist arrivals (according to our forecasts, tourism will pick up to 55% of its 2019 level), much of the savings accumulated in the past year and a half of the pandemic should serve as a stimulus for the economy as a whole in the coming quarters. The upturn will also be stronger as both the labour market and household disposable income begin to recover.

However, it is important to note that not all the savings accumulated due to the restrictions will directly lead to increased consumption once the restrictions are lifted. We expect the household savings rate to remain relatively high during 2021 as uncertainty and social distancing, albeit much more moderate than at present, continue to play their part. Moreover, it should be noted that a large proportion of the accumulated savings is concentrated among the higher income households that have been less affected by the current crisis,¹⁰ and it is precisely these income brackets that have a lower propensity to consume; i.e. when the restrictions are lifted and we begin to recover our pre-pandemic consumption habits, the households with greater purchasing power could be the ones that increase their level of consumption the least, in spite of having accumulated the most savings. On the other hand, it should also be remembered that a significant part of these savings come from the fact that a variety of services that cannot be postponed temporarily, such as tourism and leisure activities, have stopped being consumed, so these may not have generated a large pent-up demand.

To gauge how quickly and how far consumption will recover, we have analysed the sensitivity of consumption and the savings rate to uncertainty and mobility restrictions, enabling us to produce different scenarios. Specifically, we have drawn up a central scenario for consumption, in line with CaixaBank Research’s central forecast scenario which assumes a gradual lifting of restrictions from May onwards; an optimistic scenario, in which we assume that restrictions will be lifted faster and almost entirely gone by the beginning of Q3; and a pessimistic scenario, in which we assume the level of restrictions in Q1 is maintained throughout 2021. As we can see in the chart below, these different assumptions regarding the lifting of restrictions have a considerable effect on the consumption forecasts.

According to the results obtained for the central scenario, the household savings rate would moderate to 12.6% in 2021 (14.8% in 2020), resulting in 6.6% growth in consumption over the year as a whole. As can be seen, this is a relatively conservative scenario given the small moderation in the savings rate predicted (in 2019 , the savings rate was 6.3%). However, due to the great uncertainty that still exists regarding restrictions in the short term, we believe this is the most likely scenario. In the optimistic scenario, which we believe is not very likely, the savings rate would fall to 10.9% and consumption would grow by 8.7%. Finally, the pessimistic scenario, in which restrictions are maintained for longer (of residual probability), the savings rate would barely decrease (13.8%) and consumption would grow significantly less (5.2%). The large differences between the optimistic and pessimistic scenarios show how important it is for restrictions to be eased in order to contain involuntary household savings and encourage consumption.

In conclusion, household consumption forecasts for 2021 are very positive. Among other factors, this is thanks to the lifting of retail restrictions as a result of the population becoming vaccinated, the recovery in domestic and international tourism, and also the role played by pent-up demand. In this respect, retail will be one of the sectors benefitting most directly from the recovery in consumption. Nevertheless, the relatively strong performance of retail sales observed in 2020 indicates that levels of pent-up demand in the sector are somewhat lower than for other goods and services less consumed during the pandemic. In any case, 2021 looks set to be a year of strong recovery in consumption and this is good news for the sector, which will see the improvement in its activity accelerate strongly during the second half of the year.