Spain recorded another dip in the number of coronavirus cases and deaths on April 5 for the third consecutive day but the country is also reeling from the economic toll caused by the novel virus.
The eurozone’s fourth-largest economy reported its biggest spike in unemployment figures this week with around 900,000 Spaniards losing their jobs since mid-March.
Now in its fourth week of lockdown, set to be extended until April 26, more than 12,000 people have died in Spain due to the pandemic, making it second hardest-hit European country after Italy.
After years of recession following the 2008 financial crisis, Spain’s economy was recovering over the last few years.
The tourism and hospitality industry had been the engine of growth and employment.
But widespread travel restrictions and shuttered businesses have battered the economy.
Domestic demand could also take a severe blow as business activity and private spending slow.
“One of the main issues in Spain is the large share of temporary workers. In a situation like the current one, you see a massive impact on that part of the labor market, as contracts are not renewed given the sudden stop in demand,” said Angel Talavera, head of European economics at Oxford Economics.
“The labor markets data we’re seeing in many places are catastrophic so I would not say at this point it’s much worse in Spain, especially considering that the labor market in Spain has always been much more reactive to economic downturns,” he added.
Europe’s ‘wartime economy’
While Spain has announced a 200 billion euro ($216 bln) aid package to reduce the impact of the virus on its economy, the country is asking for more help.
Prime Minister Pedro Sanchez has urged the EU 27 to issue so-called “corona bonds,” which would share the financial burden caused by COVID-19 across all member states.
But the more frugal northern countries, including the Netherlands and Germany, argue against the move, afraid its southern neighbors could then exploit the crisis to push previous demands for eurozone members to pool public debt.
“Europe must establish a wartime economy to strengthen resistance, and promote the reconstruction and recovery of Europe,” Sanchez wrote in an opinion piece published by El Pais on April 5.
“This is a critical moment in which the most pro-European countries and governments, as is the case of Spain, need proof of real commitment. We need resounding solidarity,” he added.
The EU and European Central Bank have unveiled a series of economic measures and aid schemes to help the worst affected members, but it may not be enough.
“The effectiveness of these relief measures (EU and Spain’s aid package) remains to be seen and will most likely need to be combined with larger stimulus measures further down the road to revive economic activity once the shock passes,” said Javier Colato, an economist at FocusEconomics.
He said that could erode Spain’s fiscal standing in the future and place fiscal consolidation as the government’s priority, which Colato said would “reduce the space available to enact bold spending measures embedded in its (the government’s) policy agenda.”
With Spain’s politics being unstable in 2019, the year which saw two inclusive elections, the far-right Vox party making major gains, and the continuing Catalan crisis, a new economic crisis could also threaten a worrisome political blowback.