The situation of the tourism sector improved considerably during the summer months, outperforming the projections of many of the companies in the industry.
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.
The COVID-19 crisis is severely affecting house purchases. Once the slump in transactions during the lockdown has been overcome, the evolution in demand will largely depend on the recovery of the labour market and international tourism over the coming months. Our forecast scenario predicts a gradual recovery in demand, although the more than half a million transactions recorded in 2019 will not be repeated, even in 2021.
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.
will slow down the formation of households and consequently the demand for a main residence.
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.
However, demand for second homes by Spaniards might be less affected in relative terms.
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:
It is inevitable that the property development and construction sectors, which are very sensitive to economic conditions and confidence levels, will contract significantly this year. We expect a notable decline in new building permits and a severe impact on employment in the construction industry. However, the nature of the shock and the state of the sector before the appearance of COVID-19, much more favourable than a decade ago, suggest it should be able to recover.
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.
The starting point for economic agents is much more solid than in 2008.
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:
Given the dramatic decline in demand, house prices are likely to undergo some adjustment in the period 2020-2021, although there will be significant differences depending on the property's location and type. Specifically, we expect house prices to fall more sharply in the second-hand market and tourist areas, which have been severely affected by the restrictions on international travel.
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.
this correction being larger in tourist areas and for second-hand housing.
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.
The current crisis is triggering changes in many aspects of our lives, a large number of them related to our residential preferences. For example, working from home can transform how and where we live. The pandemic has also boosted the digitisation of the real estate sector and could speed up certain changes in other areas such as house modernisation, supporting the transition to a more sustainable economy.
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.
The spread of the coronavirus throughout the world has come as an unprecedented shock to the global economy. The Spanish economy has been particularly hard hit, partly because of its greater dependence on international tourism. In the second half of the year, we expect the economic recovery to take hold thanks to the easing of social distancing measures and the boost provided by the wide range of fiscal and monetary measures adopted. However, we believe the economy will continue to operate below potential over the next few years.
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 economic measures being implemented will support the recovery in activity
The Spanish economy is one of the developed economies with the largest decline in activity 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
COVID-19 is having a huge impact on economic activity in Spain and, in particular, on the tourism industry. At CaixaBank Research we expect GDP to fall by between 13% and 15% in 2020, not returning to its pre-crisis levels until 2023. The outlook in 2020 is even grimmer for Spain's tourism industry as it is one of the sectors hardest hit by the pandemic.
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.
The health crisis caused by COVID-19 has represented an unprecedented shock for Spain's tourism sector. Demand indicators confirm that the stoppage during the months of lockdown was total, both for international and domestic tourism. The end of the state of emergency and the recovery in international mobility within the EU have helped to revive flows of tourists to Spain. The outlook for the coming months points to a relatively rapid upturn in domestic tourism with a more gradual recovery for international tourist flows, although the delicate situation of the pandemic will still be a major source of uncertainty.
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.
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.
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.
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).
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.
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.
With the shock of the COVID-19 outbreak, tourism businesses reduced their activity, destroying a large number of jobs and taking massive advantage of Spain's furlough scheme (ERTE). Tourism supply is now attempting to revive itself. The lifting of mobility restrictions has encouraged a good number of tourist establishments to reopen their doors, even though demand is still low. With the start of the summer season, it is essential for the tourism sector to maintain, and benefit from, its commitment to reactivation as this is the only way to create jobs again.
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.
% 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.
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.
The tourism industry is a key sector for Spain's economy and the decline forecast in tourism for 2020 will have a major impact on the country's level of economic activity. However, this economic impact will not be spread evenly throughout Spain as there are big differences between regions in the relative importance of the tourism sector. We expect the islands and Mediterranean communities to be more exposed than the average in Spain, while inland regions will suffer less.
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%.
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.
Annual change in % and contribution in percentage points
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.
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.
The coronavirus pandemic took the world by surprise and brought international tourism almost to a complete halt. The initial phases of a relative recovery are restoring connectivity between those outbound markets and tourist destinations that have controlled the spread of the coronavirus. However, the sector will have to undertake a far-reaching and rapid transformation to adapt to the new, post-COVID-19 international tourist who will demand more personalised, flexible and, above all, safer services.
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.
according to World Tourism Organization estimates, a hefty blow to a sector that generates more than 10% of global GDP and nearly 12% of the world's employment.
A first step in understanding what the world's tourism will be like in the short term is to analyse population mobility indicators, a sine qua non for tourists to travel to their destination. Given that proximity to the tourist destination is going to be a fundamental aspect, we will look at the mobility situation within the main regions of the world: Europe, Asia and the Americas.
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.
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.
has forced a high degree of coordination among EU countries that will be key to kickstarting tourism's recovery in Europe
However, while the possibilities of connecting European tourists to a wide range of destinations within the EU seem favourable, there is still a long way to go. If we look at the following chart, with data on airport connectivity in Europe's main airports between 1 January and 30 June, we can see just how far off we are. Air mobility is currently 67% below the level observed between January and February, although slightly above the figure recorded in April when it was 92% below pre-COVID levels. In light of Europe's low international mobility, it is obviously early days yet for the recovery in tourism.
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.
Change with respect to the baseline* (%)
Number of flights
as restrictions are still in place on the entry of foreigners across the continent.
As a result, the situation is still complex for Asia's tourism industry. Looking at the air mobility data shown in the chart above, we can see how the number of flights in the area at the end of June was down by almost 60%, albeit far from the minimums recorded during the second half of April. Despite this, restrictions on the entry of foreigners remained in place in June in all countries across the region, according to data from the International Air Transport Agency (IATA). As long as there is no clear coordination between countries for the controlled reopening of borders, as in the case of the EU, tourist flows are unlikely to resume in Asia.
The 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.
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.
Change with respect to the baseline* (%)
Number of flights
makes it impossible for the tourism industry to recover at present.
We can therefore state that the outlook for a recovery in American tourism is particularly bad. First and foremost, the region must undertake the necessary lockdown measures to tackle the health crisis. Only when the health situation is under control will mobility be able to recover enough to revive the tourism sector. However, what we have learned from the experience of Europe and Asia is that controlling the growth of infections is a slow process and we therefore expect a very late recovery for the region as a whole.
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.
quality and sustainability as the flagships for a new kind of tourism.
The coronavirus will probably not change the direction of the trends we had already been observing but will help to speed them up considerably. Certain factors could be vital in understanding what the new post-COVID-19 tourism will be like:
1. Avoiding crowds and sustainable destinations: it seems more evident than ever that sustainability will play a key role in the future. Just a few weeks at home have made it clear that the individual action of each of us has a great environmental impact, raising the awareness of a large proportion of society. With this change in attitude, destinations that can offer a sustainable, more personalised solution will most probably become more attractive to an increasingly important share of the demand. On the other hand, as long as there is no vaccine or effective treatment, tourists will prefer destinations where social distancing can be easily maintained over more crowded locations.
2. Personalised services: Post-coronavirus tourists will appreciate being able to personalise their experience rather than the attractions of mass tourism. In other words, the added value of the tourist supply will become more important. Given this change, the winners will be those destinations focusing on smaller volume but offering unique experiences.
3. Digitisation: Future tourists will be much more digital because today's society already is. We must not forget that we live in a world where the use of digital media has increased dramatically due to the need to stay connected at home, both for work and personal reasons. As a result, many citizens who previously had not mastered digital channels now appreciate them and are likely to demand them when travelling.
4. Safety and health: Certainty has always been a very important factor when choosing a tourist venue and, after a shock like the coronavirus, accessibility to and the quality of the healthcare system will be factors to take into account when deciding on a location.
5. Closeness and connectivity: This article has already mentioned that connectivity is a fundamental factor for tourism; an obvious but nonetheless vital fact. It is very likely that the first connectivity channels to be reactivated will be those of medium and short range. Until a vaccine is available, short-range tourism (domestic and nearby countries) will offer many more options for tourists and greater certainty should they want to return home. Similarly, those destinations that can offer a convenient connection could significantly improve their prospects.
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.
The COVID-19 pandemic has highlighted the importance of the agrifood sector as a mainstay of the Spanish economy. During the months of lockdown, the entire food chain (which includes farmers, breeders, fishermen, cooperatives and the food industry, wholesalers, retailers, distributors and logistics operators) had to adapt quickly to secure the population's food supply. In retrospect, it is only fair to acknowledge the excellent response by the whole sector in tackling this challenge.
The pandemic has highlighted the strategic nature of the agrifood industry as an essential activity to supply the population with food. The sector has therefore been one of the least affected by the crisis: the primary sector's relative share of the total economy increased and the agrifood industry posted a much smaller decline than manufacturing industry as a whole in Q2 2020. Labour market trends have also been relatively favourable, with relatively few job losses and a smaller proportion of workers affected by furlough measures.
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.
the summer months, the economic recovery is still incomplete, fragile and uncertain.
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.
very well as a supplier of basic goods for the entire population.
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
and a lower proportion of furloughed workers, and the recovery in the number of workers registered with Social Security has consolidated during the summer.
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.
During the months of lockdown there was a radical change in food consumption patterns in Spain. Using internal data on spending with Spanish and foreign cards via CaixaBank POS terminals, we can see that expenditure in supermarkets and large food stores picked up noticeably during the state of emergency. Online shopping also increased, partly to minimise travel and contact between people, whereas consumption in restaurants plummeted. Despite the fact that, during the summer, household expenditure on restaurants picked up strongly, the slump in foreign tourism continues to be particularly detrimental to establishments geared towards international clients.
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.
while restaurant spending plummeted. The entire food chain had to adapt quickly to the changes in household consumption patterns.
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.
Here, too, companies showed themselves to be highly flexible and adaptable in responding to new consumer needs.
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).
selectively damaging some sub-products that depend on the food service industry for their final consumption.
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.
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 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
Technology is advancing at a frenetic pace and offers the agrifood chain a large number of opportunities to make its production more efficient and sustainable. Moreover, the arrival of COVID-19 has shown that the most digitalised companies were able to continue their activities more readily than the rest. In this article we examine the degree of popularity of the different digital technologies used in the primary sector and agrifood industry based on a text analysis of over 2 million tweets on Twitter. All these technologies are essential to create a connected ecosystem that will make up the Food Chain 4.0 of the future.
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.
are in the agrifood sector according to how often they are mentioned in tweets.
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.
indispensable for advancing the application of precision agriculture techniques and smart automated farming.
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
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.
making them traceable throughout the links in the food chain.
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.
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.
Agrifood exports have continued to perform very well during the pandemic within a context where international trade has been particularly hard hit by the crisis. Swine meat, fruit and some fresh vegetables have been in greatest demand, while the Basque Country and especially Aragon have been the regions posting the largest growth in exports between January and July 2020. Despite this favourable performance to date, however, the sector is keeping a close eye on developments in global trade tensions, especially between the US and EU and the Brexit negotiations.
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.
it ranks fourth in the EU and seventh in the world.
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).
Spanish agrifood exports have performed very well.
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).
have led the growth of Spanish agrifood exports during the pandemic.
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.
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.
Uncertainty over future trade relations with the UK and trade tensions with the US have not marred the sector's excellent performance.
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.
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.
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.
Activity in the real estate market is recovering from its extraordinary slump between March and June. House sales and new building permits have regained much of the ground lost in Q3 2020, a trend we expect to consolidate in 2021. House prices, whose trend is still weak but without any extreme corrections, are expected to follow a similar trend in the coming quarters, ending 2021 with a decline of around 2%.
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.
The second wave of the virus has led us to lower our forecasts for 2021, although the recent progress made in health measures provides
a note of optimism.
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.
the worsening economic situation may again compromise demand over the coming months.
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.
(essentially sustained growth in employment, recovery in wages and foreign demand) will remain weak until the epidemiological situation improves.
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
According to national accounting data, construction has been hit hard by the coronavirus crisis and is taking longer to rebound than the economy as a whole. Specifically, the gross value added (GVA) for construction, in real terms, fell by 17.1% in the first half of 2020 while GDP fell by 12.8% over the same period. Although the construction industry’s GVA rose by 22.5% quarter-on-quarter in Q3 2020, it is still 11.0% below the level recorded a year earlier. To put these figures into perspective, however, it should be noted that the GDP of the economy as a whole is 8.7% lower than in Q3 2019. On the other hand, the number of new building permits has fallen significantly, by 23.6% between January and September 2020, although this is a considerable improvement compared with the 37.2% drop recorded in the second quarter. The following chart shows that the number of permits granted up to September 2020 is similar to that of 2017, a year which closed with around 80,000 new building permits, a figure that coincides with our current forecast for new building permits in 2020.
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.
According to the indicators available on various real estate portals, rents have started to come down in most provinces and municipalities in Spain, albeit with a large number of differences across the different markets. One factor that is having a decisive effect on rents in certain areas is the substantial increase in the number of rented flats available, resulting from properties that had originally been intended for short-term tourist rents being transferred to the residential market. According to a study by Fotocasa, 64% of tourist apartment owners have switched to traditional renting.7 There has also been an increase in the average time it takes to rent a property out which, according to a study by Servihabitat,8 is now 58 days, almost 10 days more than one year ago although still far from the 64 days it used to take in 2017.
CaixaBank Research has developed new models for forecasting house prices at the level of province using large amounts of information (big data) and applying machine learning techniques. According to these models, house prices will fall in 7 out of 10 Spanish provinces in 2021 and grow only very moderately in the rest. Comparing current forecasts with those projected by the models before the pandemic, a notable correction can be seen in the expected growth of house prices in one year’s time, approximately 4 pp on average. This correction has been more pronounced in provinces with a higher urban concentration and greater dependence on foreign tourism, although they are still the most dynamic in spite of this.
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%).
while an increase was expected in 9 out of 10 provinces a year ago, today a decrease is expected in 7 out of 10.
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.
whose forecasts have seen the greatest adjustment; nevertheless, they are still the most dynamic.
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:
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.
Europe’s economic response to the COVID-19 crisis took shape in July: the European Council approved the Recovery Plan for Europe, the so-called NGEU, via which the European Union will grant up to 750 billion euros to its member states to stimulate their economic recovery after the shock of the pandemic. This is an unprecedented agreement and it could have a considerable impact on Europe’s real estate sector since one of the EU’s main goals, to which this Recovery Plan aims to contribute significantly, is to reduce greenhouse gas emissions by 55% by 2030 compared with 1990 levels. It is clear that renovating Europe’s buildings, which are responsible for 40% of the continent’s energy consumption, will be key to achieving this climate target.
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
and could be an important means of renovating Europe’s buildings, a sine qua non for achieving the agreed emission targets.
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.
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 Recovery, Transformation and Resilience Plan (PRTR) for the Spanish economy could be an important catalyst for the real estate sector. With the help of European funds, the government plans to recondition half a million homes between 2021 and 2023, with the aim of improving their energy efficiency and thereby helping to achieve the agreed decarbonisation targets. The General State Budget (PGE) also proposes a notable increase in the funds allocated to increase the amount of rented social housing, a policy that is crucial as rents have become even less affordable for the most vulnerable members of the population.
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.
will be allocated to renovating housing, tripling public investment in this area.
According to the Ministry of Territorial Policy, 4.5 billion euros of the NGEU (6.25% of all transfers) will be allocated to renovating housing over the next few years. In 2021, as stated in the PGE, around 1.65 billion euros will be channelled from the NGEU to finance housing and development policies. If this comes about, the amount alone would represent more than three times the housing items included in the country’s budgets on average over the past five years, ranging from 460 to 510 million euros per year. Furthermore, this amount represents 73% of the total allocation in the 2021 Budget for housing policies (2,253 million euros) and 6.2% of the aforementioned 26,634 million euros of the European NGEU funds that are expected to be paid out in 2021.
of which 1,651 million euros come from the European funds and will be used to recondition housing, while 569 million euros will be invested in social housing policies.
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.
and much of it was built with little attention paid to energy efficiency
In some cases these differences are the result of the technical regulations in force at the time they were built. For example, and as the following chart shows, half of Spain’s housing was built before the first basic building regulations came into force in 1980. In other words, around 12.8 million homes were built according to standards that regulated the safety of the structure but did not consider issues related to thermal insulation or energy consumption.5 Likewise, an additional 44% of homes (some 11.4 million) were built between 1981 and 2007, before the First Technical Building Code came into force which established minimum requirements for safety, habitability and energy efficiency.6 The result is that Spanish homes are largely inefficient from an energy point of view and require a thorough renovation to meet the greenhouse gas reduction targets the country has undertaken to achieve.
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
but there are certain limitations that may hinder the rate proposed.
The European funds should therefore considerably help to speed up the rate at which Spanish housing is renovated. However, there are certain aspects that could hinder the plan’s complete implementation. Firstly, the ambition of the Recovery, Transformation and Resilience Plan contrasts with the current rate of housing renovation (close to 25,000 homes per year); in fact, achieving the target of 500,000 homes in three years entails multiplying the current rate of renovation by six by 2023.
Secondly, the investment to improve the energy efficiency of housing ranges from 5,000 to 10,000 euros for the building’s envelope and from 12,000 to 40,000 euros for complete projects,15 a high cost for many households. It will be crucial for renovation support to also reach the hardest hit and most vulnerable households, as well as zones with the greatest needs in terms of reconditioning.
Thirdly, in general the population is relatively unwilling to carry out building work. According to the Housing Barometer (CIS, 2018), 87% of those surveyed did not plan to carry out any improvements or reforms to their homes in the following year (most because they did not think their homes needed them). Moreover, among those who did plan to carry out work, decorative reforms (such as in the kitchen or bathroom) were clearly prioritised over those related to energy efficiency (such as replacing doors and windows).
We should also note the predominant type of housing in Spain, mostly multi-family buildings of three or more storeys, these accounting for 67% of the total housing. It tends to be more difficult to make decisions in communities of several owners and this can present an additional barrier to some of the work required being carried out.
And, finally, the extent of public concern or awareness regarding energy efficiency is relatively lower than other housing-related issues. According to the latest housing barometer (CIS, 2018), concern about thermal comfort (35%) is similar to other concerns such as noise and security against burglary, and lower than other issues such as the lack
of a lift in some buildings.
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.
most of them intended for ownership, not rent. As a result, there is very little rented social housing, approximately 290,000 homes.
This lack of rented social housing is the result of housing policies that have historically been aimed at developing social housing via ownership. Between 1981 and 2019, almost 11 million homes were completed in Spain, 21.6% of which were social housing. During this same period, households grew by just under 8 million, so we can conclude that social housing has covered the accommodation needs of approximately 30% of Spanish households in the past four decades, a highly significant figure. However, most of the social housing built in Spain has been destined for ownership (see the chart below). Consequently, after a few years these properties have now acquired the status of free housing on the market, thereby losing their original social purpose.
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.
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 now been left behind; a year that will be remembered in the tourism industry as the toughest in recent history. In 2021, the fight against the pandemic continues and restrictions on movement and trade are still preventing normal economic activity, hitting tourism-dependent businesses particularly hard. However, the roll-out of the vaccines will provide a turning point once immunity is achieved among the population most at risk. Our projections point to a strong recovery in the sector during the second half of the year, resulting in tourism GDP growing by 80% annually, once again becoming 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.
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.
considerably less than for international tourism. After the outbreak of COVID-19, domestic demand went from generating a quarter to 64% of all overnight stays.
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.
% 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.
revealed that European tourists are still keen to travel in spite of everything. If these restrictions are eased in 2021, interest in travelling to Spain should recover.
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.
is a key factor for the recovery to begin in the tourism sector and the economy as a whole.
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.
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%.
Change compared with the same quarter in 2019
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.
in digitalisation, sustainability and infrastructures, investments which are currently difficult to undertake for such a hard-hit 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.
Rural destinations have emerged as the most attractive choice after the outbreak of the pandemic. Rural areas were a great alternative in the summer for those tourists wanting to travel whilst still maintaining a social distance. As a result, the loss of tourism business in the less urban regions of Spain has been much lower than in more traditional coastal destinations and cities. This article has applied big data techniques to analyse the trends in card payments made by both domestic and international tourists according to the characteristics of the destinations they visited. The results confirm the increased resilience of rural tourism destinations in 2020, suggesting a positive outlook for rural tourism in 2021.
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.
methodology to analyse the data from card payments made by tourists in rural 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.
% of total tourist expenditure
In 2020 rural tourism performed better than the rest of the sector, increasing its share to 14%.
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).
In these provinces that are more dependent on rural tourism, total expenditure fell by 33% annually, 17 pp less than the average for 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.
we can see that all types of businesses located in rural municipalities have recorded smaller decreases
Air passenger transport is one of the mainstays of the tourism sector's value chain. For this reason, and in a similar way to the rest of the sector, it experienced a huge slump in 2020 in the wake of COVID-19. Airlines are currently having to tackle a combination of high capital costs due to their large structures and an almost total lack of operating income. The evident need for liquidity among Europe's airlines has led some governments to inject public capital to prevent their collapse. However, 2021 looks like being the watershed the tourism sector needs: the progress made by the vaccination roll-outs and the approval of measures such as the health passport will be crucial for air passenger transport to embark on the road to recovery and return to being one of the mainstays of tourism.
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.
% of tourist consumption
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.
in air passenger transport have been posted in the EU and UK.
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
due to very low revenues and the difficulty of adjusting its high fixed costs.
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.
Change compared with 1 January 2020
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.
in 2019 to just 73 million in 2020 (–73%), dropping to levels similar to those in 1990.
The collapse of tourism in Spain in the wake of COVID-19 has pushed the tourism industry to undertake major price adjustments and the hotel sector has been the greatest exponent of this trend. According to data from the National Statistics Institute, the price per room per day charged by hotels in the summer of 2020 was 16% lower than the previous year. However, this huge price cut does not seem to have played a decisive role in reviving demand in some regions. The change in travel preferences brought about by the pandemic has meant that tourists have opted for nearby, familiar and less congested destinations, focusing less on price and thereby limiting the success of big reductions in hotel prices.
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
was so severe that most tourism-dependent busi-nesses and shops opted to lower their prices in the hope of reviving demand.
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.
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.
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.
tourism demand did not respond to price adjustments during 2020.
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.
The retail sector plays a very important role in an eminently service-based economy such as Spain’s, with a larger share compared to other European economies in terms of activity, jobs and number of firms. It is an atomised sector with a considerable number of SMEs and micro-SMEs and is particularly labour-intensive. Moreover, its presence is widespread throughout the length and breadth of our country. All this gives it a certain cohesive role, both from a social and territorial point of view, within the Spanish economy.
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%).
It was made up of almost 436,000 firms at the end of 2020, around 13% of the Spanish business fabric
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.
while Madrid accounts for most of the sector’s national turnover (26%) and Catalonia has the largest number of employees (18% of the total).
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.
Due to the pandemic, the current situation of the Spanish economy is very complex. The case of retail is no exception, although it is proving to be remarkably resilient in the face of all the restrictions on opening hours and capacity adopted in order to curb the pandemic. As revealed by the sector’s demand and employment indicators, retail trade is now close to, but below, its pre-COVID level. Despite this, an analysis of CaixaBank’s internal data shows very different figures for large and small companies, as well as for the different branches of activity, confirming that the sector has yet to recover completely.
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.
large chains and department stores have regained their pre-COVID-19 level of sales. The situation of small chains is more delicate, whose business is still 13% below the 2019 average
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).
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
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.
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
% 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.
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.
The severe restrictions imposed to contain the spread of COVID-19 have resulted in an unprecedented drop in consumption and thereby a record rise in household savings. A large part of these new savings has been involuntary, caused by the impossibility of maintaining the usual level of consumption. According to our estimates, the lifting of restrictions that started in May will encourage part of these involuntary savings to be spent on consumption, this being one of the keys to a rapid recovery of consumption in 2021.
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.
% of GDP in 2019
65% of which were caused by the restrictions and therefore involuntary. Most of this increase is in the form of cash and deposits
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
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.
We expect the household savings rate to remain relatively high during 2021 as a result of uncertainty and social distancing
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.
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 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.
The pandemic has inevitably brought about major changes in our consumption habits. Faced with the impossibility of going to a store in person, online shopping channels have gained a lot of share in 2020. According to an analysis of CaixaBank’s internal data, this growth has not only been significant but also widespread among companies of different sizes and sectors, and has encouraged many of them to use e-commerce as a sales channel for the very first time.
The harsh mobility restrictions imposed to combat the spread of COVID-19 have undoubtedly dealt a severe blow to the Spanish economy but they have also speeded up some of the changes we had already been observing. One of the changes seeing the greatest growth, and also which we have been monitoring the most, is the adoption of e-commerce by retailers. Given the mobility restrictions and social distancing, online sales are providing a boost for the retail sector that has helped to avoid an even more complex economic situation during the pandemic.
To analyse the progress of online sales, we have used the consumption indicator compiled from CaixaBank’s internal data, evaluating the trend in retail without the trade in essential goods, which perform very differently to the rest of retail trade.11 As can be seen in the chart below, e-commerce sales have performed very well since the start of the pandemic. Between the months of April and May 2020, when mobility was restricted the most, e-commerce spending achieved triple-digit growth, reaching spending volumes only surpassed in the week of Black Friday in recent years. This growth rate moderated as restrictions were eased and people could once again make face-to-face purchases. Nevertheless, the growth rates have consistently remained above 50% compared to 2019, except at very specific moments.
Variation compared to the baseline (%)2
The trend described for e-commerce is in clear contrast to the performance of face-to-face sales which, as can be seen from the chart, fell sharply during the first state of emergency and, to a lesser extent, during the second and third waves of COVID-19 in November 2020 and February 2021, respectively. In 2020 as a whole, face-to-face retail spending fell by 23% compared to 2019, while e-commerce grew by 69% year-on-year. As a result, the growth in online sales cushioned the impact on the sector’s turnover, down by 15%.
One question that should be asked is what type of commerce has been able to benefit from this growth in online sales. Switching to selling online or expanding existing e-commerce channels entails significant investment in digitisation, representing a barrier for smaller businesses, especially those having to adopt this channel for the very first time. Nevertheless, according to an analysis of CaixaBank’s internal data, the growth in e-commerce has been widespread, observed in both large and small companies, as well as in companies with e-commerce experience and also new entrants.
the growth in e-commerce has been widespread, observed in both large and small companies, as well as in experienced companies and new entrants
As the following chart shows, as of May 2020 the contribution made by new entrants to the growth in e-commerce sales increased steadily, reaching 30% of the total. However, after the second state of emergency was announced on 25 October 2020, this upward trend ended. This is probably because, in events such as Black Friday and the Christmas season, the most consolidated e-commerce retailers once again captured the bulk of online sales. However, the contribution made to e-commerce growth by new entrants was very high in 2020 as a whole, revealing that this shift to internet sales has also occurred in stores that were not previously online.
If we look at the dynamics of e-commerce by company size, we can observe two different stages. First, during the months of the first state of emergency, large companies made up the bulk of e-commerce growth. Small businesses found it more difficult to react immediately and many had to wait until they were able to open in person in order to start adapting to e-commerce sales.
large companies made up the bulk of e-commerce growth. Small businesses have taken longer to react
From the end of June, coinciding with the end of the state of emergency, the dynamics of e-commerce began to change in favour of smaller businesses. Specifically, from that moment on, the possibility of opening their doors made it easier for many small businesses to adapt to the online sales channel. As a result, in July and August online sales by smaller companies generated about half the sector’s total growth in e-commerce.
Contribution to year-on-year change (pp)
Internal CaixaBank data also suggest that the increase in online sales is not concentrated within a few types of trade; in fact quite the opposite. All retail categories have posted appreciable growth during 2020, although we expect to see e-commerce growth moderating in favour of greater on-site spending following the lifting of restrictions.
It is therefore interesting to estimate to what extent the growth in e-commerce is here to stay. To this end, the chart below shows the trend in the share of online purchases as a percentage of total purchases in the different branches of retail activity. As can be seen, the share of e-commerce picked up strongly in 2020 in all branches. However, if we compare the trend of recent years with the record of March 2021, a month with notable restrictions but not particularly hard on retail trade, we can see there are some branches of activity (bookshops and stationers, as well as textiles) where the share of face-to-face consumption has returned to normal. On the other hand, for the rest of the branches of activity, part of the extraordinary gains made in 2020 was still visible in March 2021, to some extent suggesting a possible change in consumption patterns.
Face-to-face consumption is sure to remain one of the main supports for retail trade
In conclusion, e-commerce has grown considerably after the emergence of COVID-19. This growth, moreover, has been «democratic» since both large and small companies (although the latter took a little longer) have taken advantage of the boost provided by the mobility restrictions to online consumption. It has also been a very steep learning curve, so that new entrants to e-commerce were behind much of the growth in 2020.
However, it is too early to judge how much of this change will be structural and how much will dissipate once we get over the health crisis. Face-to-face consumption is sure to remain one of the main supports for retail trade. Nevertheless, it is difficult to see a future for retail without the sector committing clearly and strongly to digitising its sales channels, enabling many small businesses to access a much larger and more diversified market and consumers to access a market with a much wider range on offer.
The outbreak of the pandemic has changed the scenario for investment in retail-related property. On the one hand, severe mobility restrictions and social distancing measures have lowered prices and rents for commercial premises, reducing investor interest. On the other hand, COVID-19 has brought about a change in the habits of Spanish consumers that has benefited supermarkets, where investment reached record highs in 2020, and has accelerated the penetration of online commerce in the retail sector, boosting investment in the logistics required to support this sales channel.
Over the last five years, commercial real estate investment has averaged around 3 billion euros per year in the Spanish retail sector. In 2019, before the arrival of the pandemic, office investment had by far the largest share in the commercial real estate sector (accounting for more than 30% of the total). However, mobilty restrictions and the rise in working from home ended up reducing investment in this type of asset to below 20% of the total by 2020. Meanwhile, investment in retail real estate increased its share of the total, accounting for nearly 25% of all commercial real estate investment in 2020, behind only the multi-family (rented residential and student housing) and logistics categories. In this case, the pandemic has allowed the retail sector to absorb the reduced interest in office and hotel investment.
In the case of Europe, the drop in office investment has been smaller and, after the impact of the pandemic, continues to be, by far, the main commercial real estate investment (around 35% of the total) thanks to the recovery in the second half of the year in the region’s major financial centres (Germany, the United Kingdom and Netherlands). On the other hand, the retail sector’s share decreased compared to previous years, in this case harder hit by the restrictions. There is a common trend: the boom in the logistics sector (associated with the greater penetration of online commerce) and the decline in assets associated with accommodation and hotels, suffering from limited mobility internationally.
According to real estate consultancy firm JLL, retail real estate investment increased by 40% in 2020 in the Spanish market, reaching 2.25 billion euros. This is a surprising figure, given the backdrop of severe restrictions to face-to-face transactions, and it is possible that much of the increase is a correction effect following particularly low investment levels in 2019. If we compare this figure with the average from the previous three years, we can see a 30% drop in retail real estate investment in 2020.
Shopping centres accounted for most of the real estate investment, with a volume of around 1.1 billion euros, although 80% of this figure is due exclusively to two large operations (Intu Asturias and Puerto Venecia) which were negotiated and closed at the beginning of the year, before the outbreak of the pandemic. In other words, if we exclude these two operations, the level of investment would be the lowest since 2013; i.e. since the Spanish economy had recovered from the financial and sovereign debt crisis.
This was followed, in volume terms, by supermarket investment which posted an all-time high in 2020 with an investment of around €600 million, representing 30% of retail real estate investment, when between 2017 and 2019 it barely accounted for 5%-10% of the total. Its success is not surprising: it has been one of the sectors that has emerged the strongest from the health crisis thanks to its role as a supplier to the population.
On the other hand, commercial premises, especially in the textile, leisure and restaurant sectors, were the most affected real estate assets. Firstly, they have been hit particularly hard by the restrictions (on capacity, limited opening times and forced closures) and by lower levels of tourism (–77% in 2020). Secondly, the pandemic has speeded up the growth in e-commerce, resulting in an oversupply of commercial premises in the short term.
On the other hand, rents for real estate assets declined across the board throughout 2020 as a result of the pandemic. The lack of buyers and the economic recession resulting from the health crisis have led to an increase in vacancy rates and the availability of premises, as well as triggering higher turnover rates among operators. Not only have small stores closed but the big brands have also taken the opportunity to reduce their bricks and mortar stores while boosting their online presence. As a result, according to JLL data from the end of 2020, prime rents on the high street (premises of 100 m2 or more) fell by 16% year-on-year in Madrid and 18% in Barcelona.12 Meanwhile, prime rents in shopping centres and retail parks in Spain also fell over the course of 2020, albeit to a lesser extent, posting declines of between 10% and 12.5% year-on-year.
In Spain, shopping centres account for 1 out of every 4 purchases in the retail sector. The situation of this business model, especially at this time of sharp declines in the influx of visitors, is being widely debated due to the decline observed for several years in the US: shopping malls, which had become popular in the 1960s and 1970s and reached maturity in the 1990s, have gone from enjoying a 75% share of retail sales to accounting for less than 10% in 2019. Given that, between 2010 and 2019, retail sales grew at a rate of 4% per year and household confidence has remained high, it seems clear that the decline in this model in the US is probably due more to structural factors: the country’s oversupply (retail density per inhabitant is five times higher than in Europe), a lack of investment in recent years, which has left the sector obsolete (more than a third of the centres were built before the 1980s), and the growing importance of e-commerce (the US is one of the countries with the highest penetration of online shopping) account for most of this decline.
In the case of Spain, there is no evidence of problems of oversupply or obsolescence comparable to those in the US and it doesn’t look like this business model is going to follow the same path as in the American giant in the short term. Firstly, Spanish retailers have only just entered a mature phase and the country’s density of shopping centres (0.34 m2 per inhabitant) is far from that of the United States (2.35 m2 per inhabitant). Secondly, Spanish shopping centres are much more modern, most of them being built in the 2000s, and their composition is more in line with new trends and consumer habits: more space is allocated to leisure and hospitality in contrast to the Anglo-Saxon model of more space for department stores and hypermarkets, which had acted as a driving force in the 1960s and 1970s but are now clearly in decline.
Here the supply has just entered its maturity phase, is more modern and in line with new consumer trends
Finally, the only factor that may pose a risk to this business model is the rise in online shopping. E-commerce accounted for around 5.4% of retail sales in Spain in 2019 but the health crisis has speeded up changes in Spanish consumer habits.13 According to estimates by the Centre for Retail Research, which offers internationally comparable data, this percentage will have shot up to around 10% by 2020. However, this e-commerce penetration is far from the figures in the US (around 20% of total sales), in the large European economies (26% in the UK, 20% in Germany and 14% in France) or even the EU average (16% estimated for 2020).
The great advantage of Spanish shopping centres in the face of the rise in online shopping is, precisely, their greater focus on leisure and hospitality, services and experiences which, to a large extent, cannot be obtained digitally. Paradoxically, what acts as a structural advantage in the medium and long term has become a liability during the pandemic because of the reduction in social interaction due to the fear of contagion. Shopping centres were the last to reopen their doors when restrictions were eased in 2020, with severe limits to capacity and, precisely, without being able to offer their leisure services in order to avoid crowds. Even so, visits to shopping centres have rebounded from the low levels in the first state of emergency: in April and May 2020, these had fallen by more than 80% year-on-year, improving in the second half of the year and, since the third wave of the virus, has remained at around 60%-70% of the pre-COVID level.
(its focus on leisure and hospitality) has become a liability during the pandemic
In principle, all the evidence suggests that, once the social distancing measures are eased and people can return to interacting socially, when we have overcome the current health crisis, Spanish consumers will resume much of their pre-COVID leisure pursuits. In fact, the survival of shopping centres in the medium and long term will depend on people returning to such social habits, making it possible to offset the rise in online shopping. Pending the outcome of these forces working both for and against face-to-face retail activity, the Spanish Association of Shopping Centres (AECC) and the main real estate consultants still believe the gross leasable area (GLA) in shopping centres will continue to increase in Spain; currently the country has 567 shopping centres and around 16.4 million m2 of area.
There is no doubt that the agrifood industry has been one of the sectors emerging stronger from the pandemic, so it comes as no surprise that its retail distribution channel has also been strengthened. In fact, supermarkets have been the only retail branch that has become stronger during the health crisis.
The health crisis has left us with consumers who eat more often at home, on a healthier, more sustainable diet, who prefer ready-to-cook food, are not so interested in the manufacturer’s brand and pay more attention to the offers available (hard discount supermarkets have come out stronger), who would rather buy local products and brands and have lost their fear of buying fresh products online. As a result, three very clear trends can be deduced for the sector: (i) the importance of proximity, given the continuing restrictions on mobility; (ii) the preference for healthier, more sustainable products and behaviour due to changing habits and greater environmental awareness, and (iii) the rise in e-commerce, also in terms of food distribution, again due to people’s restricted mobility. In this respect, supermarkets are the format that offers greater proximity and they have made a huge, in a short period of time, to include fresh, organic and gourmet products and to adapt to the new reality of online shopping.
In this context, 2020 has been an unprecedented year in terms of investment in food retail space, with a closing volume of around 650 million euros, more than double the average investment of the previous five years, according to data from the consultancy firm Savills (see the chart below). In the short term, investment in supermarkets remains an attractive option, thanks to (i) their role as distributors of staple products, with a continuous demand over time; (ii) they have proven to be particularly resilient to a crisis of these characteristics, and (iii) are perceived as a defensive, liquid produce with moderate risk.
Once the current health crisis is over, the medium to long-term outlook for supermarkets remains favourable. Undoubtedly, the online channel will continue to gain market share, albeit more gradually than in 2020. Nevertheless, it is expected that physical stores (at least those that are easily accessible and with a good location) will remain irreplaceable for food distribution given the growing preference for fresh products: in fact, it is predicted that that physical retail outlets will attract 90% of Europe’s food sales. Again, hybrid models will continue to be sought to be able to adapt more quickly to consumer preferences and, in this respect, supermarkets have proven to be flexible and agile in adjusting to changing circumstances.
The forced drop in face-to-face sales experienced by the retail sector due to restrictions on people’s mobility has been a clear catalyst for the development of e-commerce.14 At the same time, the logistics market, until a few years ago the sector with the smallest presence in commercial real estate, has seen an unprecedented upturn, boosted by the urgent storage needs that arose throughout 2020, especially in the initial few weeks of the first state of emergency when it was even feared that certain essential products would be out of stock. On balance, this boom in e-commerce has given way to a certain symbiosis between retail and logistics.
In this respect, medium-sized retail parks located in urban areas close to the city of reference have been unexpectedly favoured by this change in consumer habits: they are in privileged locations for logistics (close to the centre, with good connections, large car parks, etc.) and can now benefit from their storage capacity or simply offer click&collect services. In other words, such types of retail facilities now stand out for their ability to be converted into logistic centres, optimise «last mile» distribution (warehousing, distribution and picking warehouses) and form part of the hybrid logistics-commercial model that seems to have emerged from the health crisis.
This change in trend can be seen in investment volumes in recent months. Historically, retail real estate investment has outweighed logistics investment but in recent years interest in logistics assets has picked up: according to data from the consultancy firm JLL, 120 transactions have been processed in logistics since 2018, compared to the 86 that were signed in the retail sector.
Overall, the outlook for the retail sector and therefore for retail commercial real estate investment is favourable, as long as the recovery continues to consolidate. On the one hand, there is ample pent-up demand from the months of severe restrictions.15 On the other hand, low interest rates and ample liquidity in the market will continue to boost the appeal of commercial real estate investment compared to other alternative investments.
In order to understand how the sector will develop in the medium and long term, it is worth considering which trends are here to stay and which are merely one-off changes associated with the consequences of the pandemic, and which therefore should ease or disappear as the health crisis passes.
First, it seems clear that the lifting of restrictions associated with containing the pandemic and the return of tourists will result in a rebound in visits to retail outlets, turning the situation around: this will revive investor interest, increase the rents of premises and their profitability. For 2021, forecasts for the high street point to increases in prime rents of 0.5% in Madrid and 1% in Barcelona, modest rates and below pre-pandemic levels, similar to those expected for the major European cities. In the medium and long term, average annual prime rents are expected to grow by around 2.5% in Madrid and Barcelona, placing them among the top 10 European cities in terms of expected rental growth. Be that as it may, recovery to pre-COVID rent levels is not expected before 2024. In the case of shopping centres, a 3% annual increase in prime rents is projected, both this year and in the next few years, so that pre-COVID levels would be regained in 2023-2024.
In the case of shopping centres, an annual increase of 3% in prime rents is estimated and pre-COVID levels would be regained in 2023-2024
Another of the clearest aspects in the scenario is that e-commerce will go on increasing its penetration in the retail sector over the coming months, albeit more gradually, which will continue to force the sector to adapt to the new situation, especially in the case of commercial premises. Although the sector realises that face-to-face shopping will continue to be, by far, the largest source of revenue, stores will not be able to turn their backs on increasingly omni-channel consumers. The stores of the future will be an integrated combination of bricks and mortar and e-commerce, reducing the costs of online orders by acting as «last mile» distribution centres and click&collect spaces. This will require allocating some of their shop space to storage and the preparation of orders, as well as developing tools and technologies to enable inventory control.
The Spanish economy has a diverse, export-oriented and highly productive manufacturing sector. However, the business fabric is still highly fragmented compared to German industry, a European benchmark. Increasing company size and the productivity of companies, through investment in R&D and adopting new digital technologies, and moving towards Industry 4.0 are key in the increasing competitiveness of a fundamental sector for the economy and for the Spanish foreign sector. The sector must also evolve towards a more sustainable industrial model: only companies that successfully undertake the energy transition will be able to compete in a new environment in which sustainability will be a prerequisite for continuing to operate in the market.
Going back two decades, we can see that the manufacturing industry occupied an important position in the Spanish economy as a whole. However, from 2000 onwards, as was already happening in most advanced countries, it went through a very sharp decline that worsened during the Great Recession (2008-2013).1 Specifically, between 2000 and 2014, 41% of manufacturing jobs were lost in Spain (1.16 million fewer employees) and, in relative terms, employment in the sector went from representing 17.8% of the total in 2000 to 10.4% in 2014. The decline in terms of gross value added (GVA) was also considerable (–11% in real terms between 2000 and 2014) but notably less than that of employment,2 reflecting the significant gains in productivity achieved during this period (+3% per year per employee over the 14 years). Industry is precisely the sector that is most likely to reap the benefits of technological change: the automation and digitalisation of production processes boost labour productivity and make it possible to produce much more with the same number of workers.
after going through a sharp decline in the 2000s.
During the period of economic recovery after the global financial crisis, namely between 2014 and 2019, manufacturing grew at an average rate of 2.6% per year in real terms, very similar to the growth of Spain’s economy as a whole, so that its relative weight in the economy as a whole remained stable, contributing around 11.2% of GVA and 10.4% of total employment.3
The contribution made by manufacturing goes beyond its own production volumes. On the one hand, the sector has a significant knock-on effect on the rest of the sectors in the economy: Estimates based on input-output tables suggest that an increase of 1 euro in manufacturing output generates an increase in the economy’s total output of an additional 1.1 euros (indirect effect). Manufacturing also has a positive impact on the trade balance: 39% of the sector’s sales go abroad (27.5% to the EU and 11.3% outside).4 However, in addition to its economic impact, the industrial sector also plays a fundamental role in technological progress due to its high innovation intensity5 and the fact that it promotes the spread of technology to other business sectors and, in general, to society as a whole. These positive synergies generated by industry strengthen the case for a new industrial policy in advanced countries that promotes the development of a competitive and sustainable industrial sector.
it creates stable, good quality jobs, a reflection of its high productivity, and helps to spread technology throughout society.
Industry also generates stable, good quality jobs: 73% of those employed in the sector have been working in their current job for three years or more (compared to 69% in the economy as a whole), 17% of those employed in manufacturing have temporary contracts (compared to 24% in the economy as a whole) and workers in the sector earn wages that are 16.4% higher on average than in the economy as a whole.6 These better working conditions are not detrimental to company competitiveness; in fact they are associated with high levels of labour productivity. In fact, labour productivity in manufacturing is 42% higher than in the economy as a whole.7
Manufacturing companies have a larger average size than in other sectors. In particular, 0.5% of companies in the sector are large (250 employees or more) compared to 0.1% of the total economy.8 However, an international comparison shows that the average size of Spanish companies is smaller than in Germany, an industrial benchmark for Europe, which has a 2.1% share of large manufacturing firms. These differences in the share of larger companies may seem small but they become amplified when the comparison is made in terms of value added: In Germany, large companies account for 74% of manufacturing GVA compared to 53% in Spain.
Small firms dominate the manufacturing sector but large firms add more value
making them strong enough to compete in a globalised environment.
Company size matters because it is directly related to productivity: manufacturing companies with 250 or more workers are 48% more productive than small and medium-sized enterprises (SMEs) and, coincidentally, also 48% more productive than large companies in the economy as a whole. Consequently, one of the main challenges facing Spanish industrial companies is to increase their size, as this helps them to make the most of economies of scale, to access various sources of financing, invest in R&D and enter international markets. Spanish industry, therefore, would benefit from a process of consolidation that would increase the size of its companies. Other alternative formulas that make it possible to take advantage of synergies between companies are also positive, such as the concentration of the activity in a certain sector within the same geographical area, thereby generating industrial ecosystems and technological clusters.
The manufacturing sector encompasses a wide range of activities,9 most significantly the agrifood industry (18.8% of manufacturing GVA), the car and other transport industry (12.7%) and the chemical-pharmaceutical industry (12.1%). At a geographical level, different production specialisation can be seen in different autonomous regions, although a common factor is the agrifood industry, which is in the top 3 manufacturing branches in all regions. Navarra, La Rioja and the Basque Country are the most industrial regions, as in all manufacturing’s share of the region’s GDP is over 20%, compared to 12.3% for Spain on average. On the other hand, Catalonia was the Autonomous Community that contributed the most to the national total (25.1%), followed by the Community of Valencia (11.4%).
in which the agrifood industry stands out with a presence throughout the country, followed by the automotive industry and the chemical-pharmaceutical industry.
This diversity in manufacturing activities is also reflected in productivity, with very different levels across the different manufacturing branches. It is not surprising that pharmaceuticals, with 77% of the firms carrying out innovative activities, is by far the industry with the highest labour productivity (110,550 euros per worker per year). This is followed by chemicals (with a productivity of 94,400 euros) and beverage production (94,100 euros). In the latter case, however, the proportion of firms carrying out innovative activities is more or less in the lower range (28%).
Export capacity, measured by the share of production destined for export, varies significantly from one industrial branch to another. The most open sector internationally is automobiles: 70% of the sector’s sales are via exports (58% to EU countries plus 10% outside the EU), indicating this sector’s high degree of integration in global value chains. This is followed by pharmaceuticals (53% export sales), electrical products (52%) and metallurgy (49%). In total, exports of manufactured goods peaked at €260 billion in 2019 (accounting for 20.9% of GDP).
The chart below shows a positive relationship between the share of export sales by the manufacturing branches and their productivity, which is largely linked to the degree of innovation of the companies in the sector (represented in the chart by the size of the bubbles). It is important to note, however, that not all differences in export performance across industries necessarily reflect differences in productivity. Some sectors, such as the food and beverage industry, allocate 80% of their production to the domestic market but they also sell their products very competitively in international markets (Spain is the seventh largest exporter of agrifood products in the world).10 That said, the sector must also satisfy domestic demand and, in addition, some products have low added value or transport costs are particularly high, making it a sector that is more dependent on domestic sales.
Spain’s industrial fabric is powerful enough for manufacturing to take off again, but the future is not set in stone. The sector is going through a new industrial revolution, Industry 4.0, which involves a far-reaching transformation of production processes, from adopting new digital technologies (the internet of things, big data or cloud computing, to name but a few) to a new wave of factory automation, with digitally connected robots equipped with artificial intelligence (smart factories).
So how is Spain’s manufacturing industry performing in these areas? In terms of digitalisation, Spanish manufacturing companies have a similar degree of adoption to the European average but the gap with respect to the leading countries widened between 2015 and 2020. This is particularly true among SMEs, so there is plenty of scope for smaller companies to take greater advantage of the huge potential offered by new digital technologies.11
With regard to automation, Spain has similar levels of automation to those of its main rivals (a density of 191 robots installed per 10,000 workers in the manufacturing sector, above the European average of 114),12 but the speed of growth in this area in recent years is not enough for the country to catch up with the leading economies in our immediate vicinity, as is the case of Germany.13
promote the reindustrialisation of advanced countries.
The advances made in these two areas, digitalisation and automation, will be key to bringing back to advanced countries part of the manufacturing production that had been offshored to emerging countries. While some of the forces that have led to the deindustrialisation of advanced economies in recent decades will continue to have an effect (such as the tertiarisation of economies), it is possible the offshoring trend will give way to one of reshoring. A trend that could accelerate in the wake of the current health crisis, as it has highlighted the limitations and fragility of relying on overly dispersed global value chains.14 The pandemic is also making a large number of firms rethink the need to locate factories closer to the end consumer. This would also make production more flexible, shorten time-to-market, enhance customisation and adaptation to the tastes and preferences of different consumers and lower transport costs and pollutant emissions.
in which the sustainability of the business model will be a prerequisite to continue operating in the market.
In this respect, it is essential the manufacturing sector undertake this digital transformation at the same time as evolving towards a more sustainable production model; i.e. the green transition and digital transition must go hand in hand. In fact, some experts are already talking about the green neo-industrialisation of advanced countries to underline the need to promote more energy-efficient production models that include circular economy criteria.15 The European Next Generation EU funds are emerging as a major lever to support the green and digital transformation of industry.
The retail trade is one of the Spanish economy’s main service sectors. An atomised sector, it is particularly labour-intensive with a widespread presence throughout the country.
Although manufacturing is not among the sectors hardest hit by the crisis, the COVID-19 shock occurred within a context of a prolonged weakness in the sector, not only in Spain but in Europe as a whole. After the initial harsh adjustment, brief and uneven across the various branches of activity, the sector quickly picked up again, approaching its pre-pandemic levels of activity and employment. The outlook for 2021 and 2022 is favourable, driven especially by exports and the investments made via the Recovery, Transformation and Resilience Plan (RTRP). Recent disruptions in global supply chains, caused by global transportation bottlenecks and component shortages, will have a limited, temporary impact.
The crisis caused by the COVID-19 pandemic shattered the global economic and financial scenario in 2020. In just two months (March and April), the strict lockdowns and stoppages adopted to halt the spread of the virus caused an unprecedented shock in the world’s major economies, with GDP plummeting in Q2 2020. This was followed, however, by a strong rebound as the health crisis was brought under control and lockdown measures were lifted. Nevertheless, after the summer the recovery gradually lost momentum against a background of successive outbreaks, once again forcing restrictions on activity for a large proportion of services in the main developed economies. As a result, in 2020 we witnessed a recession that is historic in its intensity – the most severe since the Second World War – but also in its brevity.
In Spain, the extraordinary measures adopted to contain the spread of the virus limited people’s movements and paralysed a large part of production, resulting in a record decline in GDP in the first half of the year (–22.2% compared to the end of 2019). The gradual lifting of restrictions allowed a phase of reactivation to begin, albeit incomplete and asymmetric across the different regions and sectors, so the year ended with a 10.8% drop in GDP, making us one of the worst hit countries in our environment, for several reasons. On the one hand, at the beginning of the crisis the effects of the pandemic were relatively more unfavourable and restrictions harsher in Spain. On the other hand, the large share of tertiary activities has also played an important role, especially those related to tourism (hotels, restaurants, leisure and transport), which are very labour-intensive and depend to a larger degree on social interaction, as well as some of the characteristics of our manufacturing industry, such as the large number of temporary workers and small company size.
and adverse weather conditions marked the close of 2020 and the beginning of 2021.
As expected, the de-escalation and lifting of restrictions from May onwards encouraged a strong recovery in activity, boosting GDP to post 17.1% quarter-on-quarter growth in Q3 2020, a record-breaking rise. This strong upturn was largely driven by consumer spending as a large part of the pent-up demand that could not be met in the first part of the year was fulfilled. However, the downward trend over the quarter forewarned of the sharp slowdown that would occur after the summer as a result of the impact of the second wave of the pandemic, which forced the adoption of new containment measures to curb the rise in infections; as a result, GDP stagnated in the last quarter of the year and activity levels stood at 8.9% below those at the end of 2019.
The start of 2021 hasn’t been any better. The impact of a third wave of the virus, with the consequent intensification of restrictions, was compounded by the Filomena weather front that caused serious mobility problems and paralysed much of the country, especially in the centre of the peninsula. GDP resumed its downward path in Q1 2021 with a slight fall of 0.5% quarter-on-quarter and the economy was 9.4% below its pre-crisis levels (Q4 2019). On a positive note, an upward trend in activity began to be observed in March and continued in the second quarter, which makes us optimistic and confident that the recovery of the economy will consolidate over the coming months. Progress in the vaccination rollout, the lifting of restrictions and reduction in uncertainty will contribute to this, which in turn will help to reactivate consumption and flows of international tourists, of vital importance to Spain’s economy. We should also add the positive impact provided by the implementation of projects linked to the Next Generation EU (NGEU) funds.
CaixaBank Research’s GDP growth forecast remains at 6.0% for 2021 and 4.8% for 2022. Thanks to this remarkable rebound in activity, GDP could reach its pre-crisis level by 2023.
Europe’s manufacturing industry was not doing well when the pandemic crisis erupted. To a large extent, this weakness was related to trade tensions between the US and China and the disruptions in The automotive industry, a sector immersed in a technological transformation, partly due to the need to adapt its production to the new European environmental regulations.16
was stronger than on the economy as a whole, although its subsequent recovery was also
The adjustment undergone by manufacturing in terms of GVA in Q2 2020 was sharper than for the economy as a whole, a phenomenon that was observed across the board in most European countries (as can be seen in the charts below) but which was particularly marked in Spain: manufacturing GVA plummeted by 28.5% in Q2 2020 compared to Q4 2019, outstripping the decline in GDP (–22.2%). Consequently, the sector lost relative weight in the economy as a whole in Q2 2020, contributing 10.4% of GDP, the lowest since the series began in 1995, compared to the 11.2% registered in 2019 as a whole.
However, the sector recovered more quickly: in Q4 2020, manufacturing GVA in Spain was «only» 3.7% below its pre-crisis level, a gap that is narrower than the one recorded by its French and German counterparts. The reason for this rapid improvement was the fact that, unlike other activities that were more limited by the measures to curb the coronavirus, since May there have been hardly any restrictions to activity and, in addition, two important sales channels, exports and online trade, have remained active.
High-frequency activity indicators show that manufacturing business has continued its recovery in the first few months of 2021. The industrial production index (IPI) shows that manufacturing has been improving and progressively approaching its pre-COVID-19 levels, albeit not without its ups and downs as a result of the restrictions adopted to deal with the successive waves of COVID-19. In March (the latest data available), the manufacturing IPI was 5.6% below its figure for March 2019, almost half the fall recorded in 2020 as a whole (–10.4%). Other activity indicators, such as turnover, show a similar trend.
The pandemic hit the labour market very hard as the closure of non-core activities affected most manufacturing branches, with some exceptions such as the food and pharmaceutical industries. However, job losses were cushioned by the extensive use of temporary employment adjustment schemes: in the manufacturing sector as a whole, almost 327,000 workers registered with Social Security, 16.3% of the total, had been furloughed in May. Although this percentage is 3 points lower than the national figure, it hides huge differences between the different branches of activity: while in the textile and furniture industry it exceeded 30%, in the oil refining and pharmaceutical industries it was less than 2%.
given that the sector has a lower proportion of furloughed workers, and many of them only partly.
After the second and third waves, and with the progress being made by the vaccination campaign, we are witnessing a gradual recovery in employment, albeit incomplete and uneven across the different areas of activity. In April 2021 (latest data available), 2.1% of workers were still furloughed and effective employment in the sector (total registered workers discounting those furloughed) was slightly below two million, 3.6% less than in April 2019. Only three activities (pharmaceuticals, computer products and chemicals) exceeded these employment levels, in contrast to the textile branches (clothing, leather and footwear) which were more than 20% lower.
Manufacturing has not only seen a relatively low percentage of furloughs compared with the economy as a whole (3.6%) but also 40% of the cases are partial furloughs (compared with 31% for the economy as a whole), which is undoubtedly a positive sign insofar as it seems more likely that these workers will keep their jobs.
The following can be seen from the above chart, whose horizontal axis shows the average for the indicator in 2020 (i.e. the extent of the shock) and whose vertical axis indicates the recovery in March 2021:
in contrast to food, chemicals and pharmaceuticals.
Exports of manufactured goods, which account for 89% of all goods sold abroad, fell by 10.7% in 2020 to a total of 232 billion euros, breaking a decade of uninterrupted growth.17 However, in a context of plummeting domestic demand, imports fell more sharply (–12%), so that the trade deficit decreased by almost 85% to just 735 million euros, the smallest in six years.
and pharmaceutical products managed to remain in the black.
The fall in exports in 2020 was almost universal, with the exception of sales in the agrifood sector (+4.2%), pharmaceuticals (+5.6%) and, to a lesser extent, furniture and other manufacturing industries (+0.5%). At the opposite end of the scale were the automotive industry (–15.9%), textiles and footwear (–18.5%) and, above all, oil refining (–38.4%), largely due to the slump in prices.
The main destination countries were our EU partners; in particular, four of them (France, Germany, Italy and Portugal) accounted for 42% of the exports of manufactured goods: the main products came from the automotive industry in all cases, except for Portugal, which bought mainly products from the agrifood industry, especially meat products. The first non-EU destination is the US, which is in sixth place, with 5% of all manufacturing exports, while China is eighth with 3.1%: Notable in the first case are the sales of oils and, in the second, of meat products.
have boosted exports at the start of the year.
The first few months of 2021 have seen a weak but widespread improvement in manufacturing exports. However, in Q1 2021 they were still negative, posting a 1.0% drop compared to Q1 2019. On the positive side, agrifood exports continued to perform well (+15.8%), joined by those of computer and electronic products (+7.8%) and chemicals (+2.1%). On the other hand, exports of automotive, textile and footwear and oil refining products recorded double-digit decreases.
Thanks to the rapid recovery of international trade, after the collapse of goods trade in the first few months of last year, exports may become a lever for growth in 2021 and facilitate a dynamic exit from the crisis.
In a context of incipient recovery in the sector (the manufacturing PMI in April was at its highest level since 1999), some disruptions have arisen in supply chains due to bottlenecks in global transport and shortages of some components (semiconductors, microchips, metals, plastic raw materials, etc.), which could slow down production. This is confirmed by April’s PMI, which indicates that business orders pending completion recorded the second strongest rise in the series, which began almost 19 years ago.
threaten the recovery for manufacturing.
Firstly, the rapid and strong increase in demand for certain inputs for industry has found supply to be somewhat rigid as it has not increased at the same rate. Moreover, there has been a shortage of microchips, whose production is concentrated among a few East Asian manufacturers,18 undoubtedly aggravated by the considerable demand for electronic devices during the 2020 lockdowns but also by specific events, such as the cold snap in Texas in February, which forced production to stop, the fire in March at a Renesas factory in Japan and severe drought in Taiwan.19 As a result, the price of some materials has soared: the London Metal Exchange (LME) metals index has posted a cumulative increase of 24.9% since the end of 2020.20
Secondly, the recovery in international freight traffic, after the 2020 hiatus, is occurring at a time of container shortages (liners have not replenished the containers that were emptied at the start of the pandemic) and less airfreight capacity (due to the reduction in long-haul flights), resulting in longer delivery times and price tensions: the Baltic Index, an indicator of the cost of maritime transport,21 has more than doubled so far this year. To this situation must be added the increase in energy prices, although in the latter case there is an important base effect: just a year ago oil prices plummeted.
As a result of all of the above, production costs are tending to rise and, as a result, price tensions are appearing, both in industrial terms (the IPRI rose by 3.4% in April compared to April 2019)22 and consumption (inflation stood at 2.7% in May, the highest since February 2017).
will be temporary and localised to a few activities.
In any case, we believe this is a temporary impact, concentrated in just some activities, which should therefore not affect the outlook too much. On the one hand, the shortage of some components will affect certain activities, such as the automotive industry and, to a lesser extent, computer products, chemicals and electrical equipment, whose production chains may slow down, but without damaging the recovery of industry and the economy as a whole. For their part, transport problems can cause occasional delays, which we are confident will be overcome in the coming months.
As for inflationary pressures, these will continue over the coming months but should tend to normalise in the second half of the year as the base effect of the aforementioned oil prices fades and supply gradually adjusts to demand: in the case of metals, whose production is more diversified, supply will adjust more quickly so prices will tend to moderate in the coming months; microchip prices may take somewhat longer to get back to normal.
The outlook for the manufacturing sector in 2021 is favourable. In the short term growth may be modest and below GDP as the economy’s recovery will be led by those activities that were hardest hit by the crisis, in particular trade and tourism. In the medium term, the sector’s performance will be determined above all by its ability to adapt to the challenges of sustainability and digitalisation. In this respect, the ambitious Recovery, Transformation and Resilience Plan (RTRP), endowed with the NGEU funds, represents an opportunity not only to stimulate the recovery of industry but also to transform the productive fabric, through its modernisation and digitalisation.
The automotive industry is an important driver of growth and prosperity worldwide due to its contribution (i) in social terms, by facilitating people’s mobility in an efficient, safe and affordable way, and (ii) in economic terms, as a driver of innovation, a generator of good quality jobs and a pillar of international trade. In the case of Spain, it has become a mainstay of our industry and a benchmark on a global scale, thanks to a large production capacity and high productivity resulting from a skilled workforce and a great degree of plant automation. The economic crisis caused by the pandemic has taken its toll on a sector that is in the midst of a technological transformation towards electrification. A necessary transition that will be strongly supported by the Next Generation EU (NGEU) funds.
With almost 2.27 million vehicles manufactured in 2020, Spain is the second largest producer in Europe, after Germany, and the eighth largest in the world. At a European level, it is the leading manufacturer of commercial vehicles, the second for passenger cars and fourth in terms of components. If we compare the relative weight of the sector, in terms of GVA or exports, with that of the main producing countries in the euro area, Spain is at similar levels to France and Italy but far from the German giant. Far ahead are the Eastern European countries that have most recently joined the euro, such as the Czech Republic, Slovakia and Hungary, which are more specialised in producing vehicles thanks partly to the plants of large corporate groups being located in their countries, attracted by their skilled workforce, low labour costs and a long industrial tradition (some companies in the region, such as Skoda and Tatra, date back to the end of the 19th century).
its contribution amounts to 11% of GDP if all activities related to the sector are included.
In Spain, the manufacture of motor vehicles and other transport material23 contributes 12.7% of GVA and 10.5% of manufacturing jobs, making it the second manufacturing activity after the agrifood sector (18.8% of manufacturing GVA). In addition to its direct contribution to the economy, the automotive sector also stands out for its extensive network of relationships with other activities and its knock-on effect, both economically and technologically. According to data provided by the employers’ association ANFAC (National Association of Automobile and Truck Manufacturers), referring to 2019, the share of vehicle and component manufacturing amounts to 8.5% of GDP. If, in addition, we add the activities that are complementary to manufacturing (distribution and marketing, after-sales, financial services and insurance, transportation, service stations, rental and driving schools), the figure exceeds 11% of GDP. In terms of employment, this would reach 9% of workers (1.8 million), of which 66,000 are employed by carmakers (direct employment).
From the input-output tables24 it can be seen that, beyond the intense intra-sectoral relations (37% of inputs and 18.7% of jobs begin and end in the sector itself), the sector also generates considerable demand for other sectors of activity (knock-on effect). In particular, intermediate consumption includes metal products (10.3% of the total), metallurgy (7.2%) and trade, both wholesale and retail (7.1% and 5.0%, respectively).
are key to the success of a such an export-oriented sector.
The automotive sector has one of the highest rates of investment in modernisation, automation and R&D&I of all industrial sectors. Spanish production plants are among the most efficient and automated in Europe, with 1,000 industrial robots for every 10,000 employees, a figure comparable to the 1,311 robots in German plants.25 Special mention should be made of the auxiliary industry (components, machinery, materials, etc.), which is highly competitive, innovative26 and internationally renowned, manufactures a wide range of products and contributes more than 75% of the value of the vehicle. All this places the Spanish automotive industry among the most competitive in Europe: according to the KPMG index, it ranks third, behind only Germany and the United Kingdom.27
This is a strongly export-oriented sector: more than 80% of the vehicles manufactured in Spain are for export (in 2020 this figure reached 86%, very close to the record high of 2011). The propensity to export in the components segment is somewhat lower but still considerable (slightly less than 60% is exported). Exports by the automotive sector (NACE 29 and 30) totalled just over 52 billion euros in 2020, representing 19.9% of all goods exports (3.5% of GDP), far from the figures achieved at the end of the last century (28% of all goods exports) due to the greater diversification of the range of goods exported by the Spanish economy. Exports from the sector reach more than a hundred countries, although around 80% of sales go to the EU, mainly finished vehicles, while non-EU countries buy mostly components.
Only one in four of the vehicles sold in Spain has been manufactured in the country. The rest are imported from European countries such as Germany (25% of the total in 2020), France (12.3%) and the United Kingdom (6.4%), but also from Japan (7.3%) and Korea (4.4%). All in all, the balance of trade for the automotive sector is clearly favourable to the Spanish economy and, in spite of an international context marked by a slump in goods trade, the sector’s surplus grew by 21.5% in 2020 to 12.86 billion euros, 1.1% of GDP.
The sector has 17 vehicle manufacturing plants belonging to the world’s leading automotive brands (nine of them for passenger cars and SUVs, including the closure of the Nissan plant last December), along with over 1,000 equipment and component manufacturers belonging to more than 700 corporate groups. The manufacturing plants are located in 10 different autonomous regions, so the sector is well established in the industrial fabric throughout the country. In recent years, the sector has become more concentrated, with the top five brands (Seat, Volkswagen, Peugeot, Toyota and Renault) now accounting for 37% of registrations and the top ten (Kia, Hyundai, Citroën, Mercedes and Dacia), 62.6%.
In 2020, the historic pandemic crisis dealt a severe blow to the automotive sector which was one of the hardest hit initially, first by global supply chain problems and then by restrictions on non-essential businesses. However, its capacity to recover, after the total stoppage in activity and demand, was greater than in other sectors.
The crisis aggravated a situation that was already delicate due to the effects of the new environmental regulations promoted at a European level. The sector’s activity grew by a mere 0.1% in 2019 as a whole, a very slight improvement after falling by more than 1.0% in both 2017 and 2018.
The declaration of a state of emergency in mid-March 2020 brought the automotive industry to a complete standstill for about a month and a half. At the same time, the commercial network and dealerships were also closed; i.e. the capacity to meet the demand for vehicles was non-existent, with severe restrictions on movement and potential consumers confined to their homes, not to mention the uncertainty of the economic scenario in the short term. Consequently, all the indicators, for supply, demand and employment, deteriorated sharply in the first few months and then, with the easing of restrictions and consequent reopening of industry from May onwards, rebounded with some intensity, although the recovery at the end of 2020 was still incomplete.
The sector’s production plummeted 99% year-on-year in April, hitting an all-time low. The subsequent reactivation, thanks mainly to foreign demand from European markets, allowed the figures posted in 2019 to be surpassed as of September. This did not prevent Spanish factories from closing the year with a reduction of 19.6%, producing a total of 2,268,185 vehicles, half a million units fewer than those manufactured the previous year. This is the lowest level of production in seven years and is 25% below the peak in 2000, when production exceeded three million. By segment, the manufacture of passenger cars, which represent 78.8% of the total, fell by 18.9%, while that of commercial and industrial vehicles fell by 18.6%; the sharpest fall corresponds to SUVs (–76.4%), although they account for just 9,094 units. In Q1 2021, vehicle production gradually picked up but very slowly (–13.3% compared to March 2019).
The industrial production index (IPI) shows that one of the activities hardest hit in 2020 was the manufacture of motor vehicles and other transport equipment, posting the largest decline since 2009 (-18.5%), being the industry that contributed most to the overall decrease in the IPI. In terms of turnover, the trend was similar: Despite a strong recovery in the final months of the year, even reaching double-digit growth rates, the collapse in the worst months of the crisis weighed down the year’s overall balance, resulting in a cumulative decline of 10.4% in 2020. In March 2021, the sector’s turnover was still 6.2% below its March 2019 levels.
Domestic demand plummeted and has yet to recover completely. In contrast, external demand proved to be more resilient.
Domestic demand proved to be the weakest part of the sector and has not yet managed to recover from the initial impact of the pandemic. Although passenger car registrations recorded a one-off improvement in the summer months, they remained 10% to 20% below 2019 levels for the rest of the year and ended 2020 with a sharp cumulative decline, down 32.3% to 851,215, the lowest since 2013.
On the other hand, external demand showed some resistance. Although vehicle registrations also declined throughout the main European markets, they performed somewhat better than the Spanish market, with smaller falls in France (–25.5%), Germany (–19.1%), Italy (–27.9%) and the United Kingdom (–29.4%). This was key to cushioning the decline in Spanish production and was an important factor in exports gradually returning to «normal» in the second half of the year. The automotive sector is not only one of the main export sectors but also one of those that led the recovery in export sales in the last few months of the year, along with the food sector. In any case, the annual balance was negative with a fall of 15.5%, totalling 1,951,448 units exported: 1,580,297 were passenger cars (–15.4%), 8,592 SUVs (–76.7%) and 362,559 commercial and industrial vehicles (–10.6%).28
In 2020, the geographical concentration of the sector’s exports remained high: France, Germany, Italy and the United Kingdom were the main export destinations for Spanish vehicles, accounting for 64.1% of the total; this is undoubtedly a risk factor should these markets weaken (e.g. as a result of Brexit) or the emergence of a shock. These markets were not immune to the COVID-19 crisis, so their demand for Spanish vehicles fell, in France (–9.1%), Germany (–19.6%), the United Kingdom (–26.1%) and Italy (–9.9%). On the other hand, the Turkish market performed well, with an extraordinary increase (+101.9%) that has placed it fifth in the ranking of export destinations.
Beyond the weakening of the main European destination markets, the truth is that, in recent years, a certain slowdown in vehicle exports had already been observed. This is due to several factors, including greater international competition and the low production of hybrid and electric models, which accounted for just 7% of exports in 2020.29
The closure of factories, with the consequent slump in production and sales, inevitably fed through to employment. Companies were forced to resort to furloughs, an instrument that made it possible to mitigate job losses: In May, almost 60,000 workers in the sector had been furloughed, accounting for 27% of workers registered with Social Security, well above the worst figure for the economy as a whole (19.2% in April), so that effective employment (registered workers minus furloughed) was almost 28% lower than a year earlier. Since then, we have seen a gradual return of workers to their jobs, although this upward trend was interrupted during the last few months of the year, coinciding with the third wave of the pandemic and the consequent tightening of restrictive measures: Last April (latest available data), effective employment was 6% lower than in the same month of 2019.