ANALYSIS: How new virus restrictions are dealing a fresh blow to Spain’s economy

Fresh virus restrictions imposed in Spain's two regional economic powerhouses, Catalonia and Madrid, have darkened the country's already bleak growth forecasts and angered business leaders.

ANALYSIS: How new virus restrictions are dealing a fresh blow to Spain's economy
One of many boarded up hotels in the capital. Photos: AFP

The two regions together account for around 40 percent of Spain's economic output and are home to most of the country's big firms, as well as the pillars of its economy such as tourism and the manufacturing sector.

“We will die of hunger,” hundreds of restaurant operators chanted during a protest Friday in Catalan capital Barcelona against a 15-day shutdown of bars and restaurants to contain a surge in cases in the northeastern region.   

The measure was introduced shortly after a partial lockdown was imposed in Madrid and several of its satellite towns early October to curb a second wave of the virus in Spain, where nearly 34,000 people have died and about 975,000 have been infected.   

Madrid residents can only leave city limits for essential reasons linked to work, school or healthcare, while opening hours and the capacity of bars and restaurants have been reduced.

If the restrictions are maintained for long in the two regions, it will have “a very negative impact” on the economy, Inigo Fernandez de Mesa, the deputy chief of business lobby group CEOE, told AFP.

The current situation corresponds with the group's more pessimistic forecasts at the start of the pandemic in March, predicting this year's gross domestic product would drop between 13 and 14 percent.

The government has also downgraded its forecast and now sees the Spanish economy, the eurozone's fourth largest, falling 11.2 percent in 2020, compared with an earlier forecast in April of 9.2 percent.

The International Monetary Fund meanwhile predicts Spain's tourism-dependent economy will fall by 12.8 percent this year, the worst performance of any Western nation.

Business closures

In Catalonia, the forced closure of bars and restaurants will cost the food service sector €780 million ($913 million), according to Pimec, a Catalan business chamber.

In Madrid, 70 percent of the city's hotels are shut and some 15,000 companies have closed down since the start of the pandemic, according to local business associations.

Madrid's landmark Gran Via boulevard, home to the city's first skyscraper, is already showing signs of the economic pain.

About a third of its businesses, including half a dozen major hotels and several bars and restaurants, are closed, according to a study by newspaper El Pais.   

Around 100,000 businesses have closed nationwide, the CEOE says.   

But the real damage will come once the government ends measures to prop up the economy, such as credit lines for businesses and a furlough scheme for workers.

These measures “help a lot… but they can't last forever,” admitted Fernandez de Mesa.

'Erratic decisions'

After a catastrophic summer for tourism, the fresh virus restrictions announced in October have sparked a backlash from businesses.   

“Companies are suffering the consequences of erratic decisions based on the hibernation of the economy, which have failed to control the pandemic or avoid the loss of jobs,” Madrid business confederation CEIM said in a statement.

Businesses argue that people will be less exposed to the virus in shops and restaurants because of the health protocols that have been put in place such as the mandatory use of masks.

“A business is the safest place because measures have been taken and they are respected. Where there is a risk is at the weekend” at small private gatherings, the head of Spain's small trade federation, Julian Ruiz, told newspaper El Mundo.

Some indicators, such as credit card use, point to a “reactivation” of the economy, according to Economy Minister Nadia Calvino.   

“The impact is more from the uncertainty people feel than from the restriction on mobility,” she added in a radio interview on Monday.   

Spain will receive 140 billion euros ($165 billion) in grants and loans from a European Union recovery fund, the most of any country after Italy.

By AFP's Emmanuelle Michel


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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).