PERSPECTIVES OF THE SPANISH ECONOMY WITHIN THE EUROPEAN CONTEXT: CHALLENGES AND ROLE OF THE NGEU
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PERSPECTIVES OF THE SPANISH ECONOMY WITHIN THE EUROPEAN CONTEXT: CHALLENGES AND ROLE OF THE NGEU ÓSCAR ARCE Director General Economics, Statistics and Research BANK OF AMERICA Madrid 21 June 2021 DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
SHORT-TERM INDICATORS SHOW AN IMPROVEMENT IN ACTIVITY IN THE SPANISH ECONOMY SINCE
MARCH, WHICH HAS ACCELERATED MORE RECENTLY
TOTAL REGISTRATIONS, FURLOUGHED WORKERS TURNOVER. QUARTERLY DEVELOPMENTS (a) Q-O-Q GDP GROWTH (%)
AND ACTUAL REGISTRATIONS: CHANGE SINCE
FEBRUARY 2020 (%)
0.4 2.5
0 2.2
0.3
2.0
-5 0.2
0.1 1.5
-10 0.0
1.0
-0.1
0.5
-15 -0.2
0.0
-0.3 0.0
-20 -0.4
-0.5
-0.5 -0.5
-0.6 -1.0
-25
2020 Q4 2021 Q1 2021 Q1 2021 Q2 2021 Q2 2021 Q3 2020 Q4 2021 Q1 2021 Q2
abr-20
abr-21
jul-20
nov-20
dic-20
feb-21
mar-20
jun-20
ago-20
mar-21
sep-20
may-20
oct-20
may-21
ene-21
(Nov. (e) (Feb. (e) (May (e) (b)
wave) wave) wave)
FURLOUGHED WORKERS TOTAL REGISTRATIONS
ACTUAL REGISTRATIONS
Sources: Banco de España, Instituto Nacional de Estadística and Ministerio de Inclusión, Seguridad Social y Migraciones.
(a) Index calculated as: “Significant decline” = -2; “Slight decline” = -1; “Stability” = 0; “Slight increase” = 1; “Significant increase” = 2. Encuesta del Banco de España sobre la actividad empresarial (EBAE).
(b) Macroeconomic Projections, June 2021, Banco de España.
2THE CURRENT ECONOMIC AND HEALTH CONTEXT IS CARACTERIZED BY HIGH DEGREE OF UNCERTAINTY
(CAPTURED BY ALTERNATIVE SCENARIOS)
MAIN SOURCES OF UNCERTAINTY:
Pandemic
Private consumption/saving
Foreign tourism
NGEU: degree of execution and multiplier effect
Persistent effects of the crisis on potential growth
Effectiveness of public policies
Source: Banco de España.
3FACTORS DETERMINING THE INTENSITY OF THE RECOVERY INCLUDE THE PACE OF (I) HOUSEHOLDS
CONVERTING CUMULATIVE SAVINGS INTO EXPENDITURE AND (II) THE RETURN OF TOURISM
SAVING RATE TOURISM EXPORTS
% GDI % relative to 2019 Q3 level
16 120%
14 100%
12 80%
10 60%
8 40%
6 20%
4 0%
2019 2020 2021 2022 2023 2020 Q3 2021 Q3 2022 Q3 2023 Q3
BENIGN SCENARIO BASELINE SCENARIO
BENIGN SCENARIO BASELINE SCENARIO ADVERSE SCENARIO
ADVERSE SCENARIO AVERAGE, 2015-2019
Sources: Banco de España and Instituto Nacional de Estadística.
4A GRADUAL RECOVERY OF GDP IS EXPECTED, FAVORED BY THE CONTINUATION OF EXPANSIONARY
POLICIES (AND, IN PARTICULAR, BY THE NGEU)
GROSS DOMESTIC PRODUCT
(chained volume index)
2019 Q4 = 100
105
100
95
CHANGES IN GDP FORECASTS IN THE JUNE BASELINE
90 SCENARIO COMPARED WITH THAT FOR MARCH
85
2021: Changes in exogenous variables and upward revision
for the current quarter
80
Revisions of past data
75
2019 Q4 2020 Q4 2021 Q4 2022 Q4 2023 Q4 2022: Changes in exogenous variables and re-estimation of the
MARCH 2021. BASELINE SCENARIO JUNE 2021. BENIGN SCENARIO degree of absorption of the NGEU
JUNE 2021. BASELINE SCENARIO JUNE 2021. ADVERSE SCENARIO
2023: Changes in exogenous variables
Sources: Banco de España (Macroeconomic Projections, June 2021) and Instituto Nacional de Estadística.
5CHALLENGES FOR THE SPANISH ECONOMY IN THE MEDIUM TO LONG RUN AND MAIN POLICY LEVERS TO
ADDRESS THEM
Source: Banco de España.
6SPAIN SHARES WITH THE REST OF EUROPE IMPORTANT LONG-TERM CHALLENGES, SUCH AS
DRIFTING AWAY FROM THEIR COMPETITORS ON FIELDS LIKE INNOVATION AND ENTREPRENEURSHIP
EXPENDITURE IN R&D: BUSINESS SECTOR EXPENDITURE IN R&D: PUBLIC SECTOR UNICORN COMPANIES
OCTOBER 2019 (a)
% GDP % GDP Number
4 0.7 250
0.6
200
3
0.5
150
0.4
2
0.3
100
1 0.2
50
0.1
0
0.0 0
CHINA
SPAIN
SOUTH KOREA
ITALY
FRANCE
JAPAN
UNITED STATES
EUROPEAN UNION
EURO AREA
GERMANY
CHINA
EUROPEAN UNION
UNITED KINGDOM
UNITED STATES
GERMANY
CHINA
FRANCE
SPAIN
ITALY
JAPAN
SOUTH KOREA
UNITED STATES
EURO AREA
EUROPEAN UNION
GERMANY
Sources: CB-insights and Eurostat
(a) Technological companies with a market valuation of more than 1 billion dollars.
7EUROPE MUST ALSO FACE SOME COSTLY STRUCTURAL CHALLENGES, LIKE CLIMATE CHANGE
ADDITIONAL ANNUAL INVESTMENT NEEDS IN THE EU-27 TO COMPLY WITH THE CLIMATE
OBJECTIVES
% GDP
3.5
3
2.5
2
1.5
1
0.5
0
OBJECTIVE 32.5% (CURRENT) OBJECTIVE 40% (INCREASED)
Sources: European Commission.
8THE RELATIVE INITIAL CONDITION WILL NOT HELP: THE PANDEMIC HAS HAD A HIGHER IMPACT ON
EUROPE THAN ON THE LEADING GLOBAL ECONOMIC AREAS
EVOLUTION OF GDP
2019Q4 =100
110
105
100
95
90
85
80
dec-2019 jun-2020 dec-2020
EMU USA CHINA
Sources: Refinitiv.
9AN IMPORTANT LEVER FOR EUROPE TO REDUCE ITS GAP WITH THE GLOBAL LEADERSHIP BY THE USA
AND CHINA IS THE NGEU
• The NGEU seeks not only to contribute to economic recovery, but also to catalyze the transformation of the economies
(ecological and digital transition).
• The Recovery and Resilience Mechanism (RRM) is the main instrument of the NGEU (€ 723.8 billion) and represents an
unprecedented fiscal boost in some countries.
• The main objectives of the investments financed with the RRM are the ecological transition (37%) and the digital
transformation (20%).
SUBSIDIES AND LOANS PROVIDED IN THE PRR DISTRIBUTION OF EXPENDITURE BY OBJECTIVES
% of GDP in 2020
20 SI
18 DK
ES
16 FR
14 BE
GR
12 DE
10 HU
CY
8
EU
6 IT
PL
4
SK
2 LU
PT
0
EA27
GR
BE
ES
RO
IT
IE
FI
DE
LT
DK
LV
FR
LU
SI
PT
CZ
AT
HR
PL
CY
SK
HU
SW
0 20 40 60 80 100
% of total
SUBSIDIES LOANS GREEN DIGITAL OTHERS
Source: Own elaboration, based on Bruegel.
a In some cases, part of the spending from the PRRs aims, at the same time, to the ecological transition (i.e. green investment) and to digital transition. For presentation purposes, it is assumed that said
expenditure is distributed equally between green and digital investment.
10NGEU SHOULD ALSO HELP TO ALLEVIATE SOME STRUCTURAL WEAKNESSES, SUCH AS THE
ABSENCE OF RISK-SHARING MECHANISMS OR THE SCARCITY OF SAFE ASSETS
STRENGTH OF RISK-SHARING CHANNELS STOCK OF SAFE ASSETS
1.0 % GDP
140
0.9
0.8 120
0.7
100
0.6
80
0.5
0.4 60
0.3
40
0.2
0.1 20
0.0
0
UNITED EURO AREA SPAIN CANADA UNITED GERMANY
EURO AREA UNITED STATES
STATES KINGDOM
CAPITAL MARKET PUBLIC GRANTS CREDIT CHANNEL
UNSHARED RISK
SUPRANATIONAL NATIONAL NGEU
Sources: Cimadomo et al (2019), European Commission, Eurostat and national statistics..
(a)Long-term public debt. Credit rate AAA/AA+ S&P. National of the European Union includes Germany, Austria, Denmark, Finland, Luxembourg,
Netherlands and Sweden.
11THE LARGE AMOUNT OF NGEU RESOURCES ALLOCATED TO SPAIN COULD MAKE A SUBSTANTIAL
CONTRIBUTION TO ECONOMIC GROWTH
• The Spanish Government PRTR plans to absorb 96% of the funds available for transfers between 2021 and 2023 (€ 66.8
mm) and announces (although without further details) that loans will also be used.
• The detailed analysis of the PRTR carried out by the Banco de España leads to the assessment that the fiscal impulse
between 2021 and 2023 will be significant.
• According to the Quarterly Model of the Banco de España, it is estimated that GDP could increase, on an annual
average basis, by up to 1.8 pp in 2021-2023.
SIMULATED NGEU FISCAL BOOST NGEU IMPACT ON GDP
% of GDP pp
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
2021 2022 2023 2021 2022 2023
Source: Banco de España.
12MAXIMIZING THE BENEFITS OF NGEU IN SPAIN INVOLVES SIGNIFICANT CHALLENGES
Source: Banco de España.
13THANK YOU FOR YOUR ATTENTION DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
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