Not as good as forecast: Bank of Spain cuts 2021 economic outlook

The Bank of Spain on Tuesday lowered its forecast for economic growth this year due a slower than expected roll out of the European Union's recovery funds for the bloc's coronavirus-battered economies.

Not as good as forecast: Bank of Spain cuts 2021 economic outlook
People walk past a closed souvenir shop in the centre of Madrid. Photo: Gabriel BOUYS/AFP

Weaker than expected growth in the first quarter due to fresh restrictions imposed to tackle the third wave of COVID-19 infections also led the central bank to revise its 2021 growth forecast down to 6.0 percent from 6.8 percent predicted in December.

“The economic outlook remains subject to high uncertainty,” it said in a report outlining its latest macroeconomic projections for the Spanish economy, the eurozone’s fourth largest.

Spain’s economy contracted sharply by 11 percent in 2020, one of the worst performers in the eurozone, with its key tourism sector battered by the pandemic.

Spain and Italy, the EU’s hardest hit countries by the pandemic, will be the main beneficiaries of the bloc’s 750 billion euro rescue plan.

The country is due to receive 140 billion euros between 2021 and 2026 but the Bank of Spain said “part of the positive impact” of this plan will only be felt in 2022, and not this year as initially forecast, due to delays in the distribution of the funds.

Socialist Prime Minister Pedro Sanchez vowed in October to use the funds to create over 800,000 new jobs between 2021 and 2023.

Economic growth could reach 7.5 percent this year if the health crisis sparked by the pandemic improves thanks to to vaccination of a large part of the population, the central bank said.

But it could be as little as 3.2 percent under the central’s bank’s more pessimistic scenario if the immunisation campaign is slower than expected and fresh waves of infections lead to new restrictions on economic activity.

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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).