MACROECONOMIC PROJECTIONS FOR SPAIN 2020-2022 - ÓSCAR ARCE Director General Economics, Statistics and Research
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MACROECONOMIC PROJECTIONS FOR SPAIN 2020-2022 ÓSCAR ARCE Director General Economics, Statistics and Research Madrid 16 September 2020 DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 2CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 3VERY SEVERE CONTRACTION IN ECONOMIC ACTIVITY AS A CONSEQUENCE
OF COVID-19
Very sharp decline in activity in Q2 as a consequence of the impact of the health crisis
and the containment measures.
Gradual recovery in Q3, with a loss of strength towards the end of the quarter.
Two scenarios are considered for activity developments:
1) Different assumptions regarding epidemiological developments
2) Marked fall in GDP in 2020 and subsequent recovery, with a high level of uncertainty
3) The return of activity to its normal level will be incomplete; at the end of 2022, activity will be
below its pre-pandemic level.
The risks are on the downside in the coming quarters, linked to epidemiological
developments and the availability of an effective treatment and, also, to other risks
stemming from the external environment.
Overall inflation has an upward profile until the beginning of 2021, and subsequently
stabilises, strongly influenced by the behaviour of energy, while core inflation rises
very moderately over the whole of the horizon.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 4ÍNDICE
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 5ALTERNATIVE SCENARIOS (I): COMMON ELEMENTS • The availability of an effective medical solution from the second half of 2021 would allow any containment measures in place at that time, the impact of which would be particularly notable in the “social industries”, to be lifted. • Despite the projected recovery, at the end of 2022, under both scenarios, the level of GDP would be lower than before the pandemic. • In both scenarios, the degree of uncertainty surrounding the development of the pandemic and its impact on business and household incomes will continue to weigh on the spending decisions of these agents in the coming quarters. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 6
ALTERNATIVE SCENARIOS (II): DISTINGUISHING ELEMENTS SCENARIO 1: • Similar epidemiological assumptions to those of the gradual recovery scenario of June: emergence of fresh outbreaks, although only requiring containment measures of limited scope, both from a geographical standpoint and in terms of the sectors affected, and therefore causing relatively limited additional disruption to economic activity. • The consequences of the containment measures are expected to directly affect sectors linked to accommodation and food service activities and leisure (and, on the demand side, tourism) and indirectly influence other productive sectors through spillover effects. SCENARIO 2: • More intense outbreaks and the return of more stringent confinement measures, particularly affecting those services sectors where social interaction is a key element, and likewise directly affecting other productive sectors. • The result is a sharper and longer-lasting contractionary impact on activity. • The availability of an effective medical solution would lead to an improvement in activity, more markedly so under scenario 2, in keeping with the greater intensity of the outbreaks of the pandemic until that time. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 7
CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 8MARKED DECLINE IN ACTIVITY IN Q2
GDP fell 18.5% quarter-on-quarter in Q2, the sharpest decline in the available time series since
1970.
This decline stands mid-range between “early recovery” and “gradual recovery”, the two scenarios
published in June.
The drop in activity was more marked than in the majority of European countries.
QUARTER-ON-QUARTER GDP GROWTH (%) AND GDP GROWTH. QUARTER-ON-QUARTER RATES
CONTRIBUTIONS (pp)
QNA 2020 Q1 2020 Q2
0%
JUNE PROJECTION: GRADUAL RECOVERY
JUNE PROJECTION: EARLY RECOVERY -2.0% -2.2%
0
-5% -3.7%
-5.5% -5.2%
-2.3 -5.9%
-2.9
-6 -10%
-9.7%
-11.8%
-12.8%
-15% -13.8%
-12
-20% -18.5%
-16.0 -16.1 -20.4%
-18
-18.5 -18.8 -25%
-21.8
-24
GDP Domestic demand Net external demand
Sources: Banco de España (Q2 projection of the June Quarterly Report), INE (Quarterly National Accounts for Q1 and Q2), ECB and Office for National
Statistics.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 9THE CONJUNCTURAL INDICATORS APPEAR TO SHOW AN INTERRUPTION IN
AUGUST TO THE GRADUAL RECOVERY PATH THAT BEGAN IN MAY
PRIVATE VEHICLE REGISTRATIONS RETAIL TRADE INDEX
Y-o-y rate of change, % Y-o-y rate of change, %
50 10
25 0
0
-10
-25
-20
-50
-75 -30
-100 -40
15 16 17 18 19 20 15 16 17 18 19 20
PURCHASING MANAGERS' INDICES CONFIDENCE INDICATORS (standardised)
points
70 2
60 1
50 0
40
-1
30
20 -2
10 -3
0 -4
2017 2018 2019 2020 2017 2018 2019 2020
COMPOSITE PMI MANUFACTURING PMI SERVICES PMI ECONOMIC SENTIMENT INDICATOR INDUSTRY SERVICES
Sources: ANFAC, INE, IHS Markit and European Commission. Latest observation: August (registrations, purchasing managers’ and confidence indices) and
July (retail trade index).
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 10SLOWDOWN IN THE ACTIVITY IMPROVEMENT DURING THE SUMMER MONTHS
The recovery path followed by high-frequency indicators slowed during the summer
months, broadly remaining below pre-crisis levels.
LOCAL MOBILITY INDICATORS (a). RETAIL AND RECREATION OUTLETS,
PUBLIC TRANSPORT STATIONS AND WORKPLACES (7-day moving average) MOTORWAY TRAFFIC
Year-on-year rate of change with
% respect to equivalent week, %
40 15
0
20
-15
0
-30
-20
-45
-40
-60
-60 -75
-80 -90
6-Jan/12-Jan
27-Jan/2-Feb
17-Feb/23-Feb
9-Mar/15-Mar
30-Mar/5-Apr
20-Apr/26-Apr
11-May/17-May
1-Jun/7-Jun
22-Jun/28-Jun
13-Jul/19-Jul
3-Aug/9-Aug
24-Aug/30-Aug
-100
22 Feb
29 Feb
07 Mar
14 Mar
21 Mar
28 Mar
04 Apr
11 Apr
18 Apr
25 Apr
02 May
09 May
16 May
23 May
30 May
06 Jun
13 Jun
20 Jun
27 Jun
04 Jul
11 Jul
18 Jul
25 Jul
01 Aug
08 Aug
15 Aug
22 Aug
29 Aug
05 Sep
FRANCE GERMANY HONG KONG
% %
ITALY -100 KOREA
SOUTH -100
NETHERLANDS SPAIN FRANCE ITALY
2…
2…
7…
1…
2…
2…
4…
1…
1…
2…
2…
9…
1…
SPAIN UNITED STATES
Sources: Sources: Google and Atlantia Group. Latest data: 6 September (mobility) and 30 August (motorway traffic).
a. Each grey line represents a different country).
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 11GRADUAL AND INCOMPLETE RECOVERY IN SOCIAL SECURITY
REGISTRATIONS
Social Security registrations have recovered in recent months, with the August
average standing 2.8% below the level recorded a year previously (-4.8% in May).
In year-on-year terms, the increase was more marked in July and the first half of
August, with indications of the recovery losing momentum since then.
DAILY SOCIAL SECURITY REGISTRATIONS FROM YEAR-ON-YEAR RATE OF CHANGE IN DAILY SOCIAL
BEGINNING OF MARCH SECURITY REGISTRATIONS
Thousands of people %
19,600 4
19,400
2
19,200
19,000
0
18,800
18,600 -2
18,400
18,200 -4
18,000
-6
17,800 01 Mar 01 Apr 03 May 03 Jun 02 Jul 31 Jul 31 Aug
01 Mar 01 Apr 03 May 03 Jun 02 Jul 31 Jul 31 Aug
DAILY REGISTRATIONS
DAILY REGISTRATIONS MONTHLY AVERAGE
Source: Ministerio de Inclusión, Seguridad Social y Migraciones. Latest data: 31 August.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 12THE NUMBER OF WORKERS ON FURLOUGH HAS DECLINED SHARPLY,
ALLOWING A NOTABLE RECOVERY IN ACTUAL SOC. SEC. REGISTRATIONS
The number of workers on furlough has fallen by more than 70% from the highs recorded in April,
reaching just over 800,000 at the end of August. This reduction has allowed actual registrations to
recover to a year-on-year decline of -7.4% from the lows of -20.9% in May.
The recovery is quite uneven by sector of activity: some services sectors, such as accommodation
and food service activities (-29%), remain well below the employment levels of a year ago.
TOTAL AND ACTUAL SOCIAL SECURITY YEAR-ON-YEAR RATE OF CHANGE IN ACTUAL SOCIAL
REGISTRATIONS. MONTHLY AVERAGE DATA SECURITY REGISTRATIONS BY SECTOR OF ACTIVITY
% y-o-y %
5 Total
Health
0 Agriculture
Public administration
Water supply
Construction
-5 Financial activities
Education
Domestic help
-10 Energy
Information and communication
Prof., scientific and technical activities
Mining and quarrying
-15
Manufacturing
Trade
Real estate activities
-20 Transport
Other services activities
Extraterritorial organisations
-25 Administrative activities
Arts and recreation
01 Jan
01 Feb
01 Mar
01 Apr
01 May
01 Jun
01 Jul
01 Aug
Accomm. & food service activities
-75 -60 -45 -30 -15 0
TOTAL SOCIAL SECURITY REGISTRATIONS
MAY 2020 AUGUST 2020
ACTUAL SOCIAL SECURITY REGISTRATIONS (a)
Source: Ministerio de Inclusión, Seguridad Social y Migraciones.
a) Actual Social Security registrations: total registrations less workers on furlough
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 13THE DOWNTURN IN THE TOURISM SECTOR PLACES CONSTRAINTS ON THE
PERFORMANCE OF GDP IN Q3
The calibration of the decline in GDP this quarter compared with 2019 Q3 takes into
account above all the restrictions on activities related to tourism and recreation which
have curtailed their recovery since August.
Possible spillovers to the other sectors of activity are also taken into account (see
Prades and Tello, 2020).
Y-O-Y FALL IN GDP IN Q3: CONTRIBUTIONS BY SECTORS (PP)
pp
-1
-3
-5
-7
-9
-11 -9.5 %
-13
-12.3 %
-15
SCENARIO 1 SCENARIO 2
PRIMARY SECTOR INDUSTRIAL SECTOR
CONSTRUCTION RETAIL AND WHOLESALE TRADE
TRANSPORT TOURISM
OTHER SERVICES PUBLIC ADMINISTRATION, EDUCATION AND HEALTH
Sources: Banco de España and INE.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO NSPAIN IS HIGHLY EXPOSED TO INBOUND TOURISM
The Spanish economy is highly sensitive to inbound tourism. The relative weight of
tourism exports is higher than in the main euro area economies.
WEIGHT OF TOURISM EXPORTS IN GDP (2018) WEIGHT OF TOURISM IN EXPORTS (2018)
% %
9 25
8
7 20
6
15
5
4
10
3
2
5
1
0 0
ES PT FR GR AT IT FI BE DE IE ES PT FR GR AT IT FI BE DE IE
Sources: OECD and Eurostat.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 15FRESH OUTBREAKS OF THE PANDEMIC IN SPAIN HAVE DISRUPTED THE
RECOVERY OF INBOUND TOURISM
The worsening of the health crisis has led the main countries that provide tourists to
impose new restrictions on travel to Spain.
This has curtailed the incipient recovery of inbound tourism observed at end-June
and in early July.
RECENT DEVELOPMENTS IN SPENDING WITH FOREIGN SPAIN: INBOUND TOURISM INDICATORS BY MAIN
CREDIT CARDS AND AIR TRAFFIC SOURCE MARKETS
Y-o-y rate of change (seven-day moving average) Y-o-y rates in July 2020
0 0
-10 -10
-20
-20
-30
-30
-40
-40
-50
-60 -50
-70 -60
-80 -70
-90 -80
-100
-90
07/03/20
14/03/20
21/03/20
28/03/20
04/04/20
11/04/20
18/04/20
25/04/20
02/05/20
09/05/20
16/05/20
23/05/20
30/05/20
06/06/20
13/06/20
20/06/20
27/06/20
04/07/20
11/07/20
18/07/20
25/07/20
01/08/20
08/08/20
15/08/20
22/08/20
29/08/20
05/09/20
-100
TOTAL UNITED GERMANY FRANCE ITALY
KINGDOM
AIR TRAFFIC IN SPANISH AIRPORTS
Tourist arrivals Tourist spending Overnight hotel stays
SPENDING WITH FOREIGN CREDIT CARDS
Sources: Eurocontrol, INE and Banco de España
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 16CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 17SLUMP IN ACTIVITY IN 2020 AND SUBSEQUENT RECOVERY
JUNE 2020
Annual rate of change (%), unless otherwise indicated SEPTEMBER 2020 PROJECTIONS
PROJECTIONS
SCENARIO 1 SCENARIO 2 GRADUAL RECOVERY
2019 2020 2021 2022 2020 2021 2022 2020 2021 2022
GDP 2.0 -10.5 7.3 1.9 -12.6 4.1 3.3 -11.6 9.1 2.1
Harmonised index of consumer prices (HICP) 0.8 -0.2 1.0 1.2 -0.3 0.8 1.1 -0.2 1.2 1.5
Harmonised index of consumer prices excluding
1.1 0.7 0.8 1.0 0.6 0.5 0.8 0.8 1.0 1.1
energy and food
Unemployment rate (% of labour force). Annual
14.1 17.1 19.4 18.2 18.6 22.1 20.2 19.6 18.8 17.4
average
General government net lending (+) /net borrowing (-)
-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2 -11.2 -6.8 -6.1
(% of GDP)
General government debt (% of GDP) 95.5 116.8 115.4 118.0 120.6 125.6 128.7 119.3 115.9 118.7
Sources: Banco de España and INE. Projections cut-off date: 10 September 2020.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 18REAL GDP AT END-2022 WOULD BE BELOW THE DECEMBER 2019 LEVEL
UNDER BOTH SCENARIOS
Pick-up in activity in 2020 Q3.
GDP IN 2020 GROSS DOMESTIC PRODUCT
(Q-o-q rate of change, %) (Chained volume index)
% 2019 Q4 = 100
25 110
20 16.6 % 105
15 13.0 %
100
10
5 95
0 90
-5
85
-5.2 %
-10
80
-15
-20 -18.5 % 75
-25 70
Q1 Q2 Q3 2019 Q4 2020 Q4 2021 Q4 2022 Q4
DECEMBER 2019 PROJECTIONS
SCENARIO 1 SCENARIO 2 SCENARIO 1
SCENARIO 2
Sources: Banco de España and INE
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 19FINAL DEMAND WILL RECORD A STEEP DROP IN 2020
… and recover in 2021, underpinned mainly by growth of domestic demand.
GDP GROWTH (%) AND CONTRIBUTIONS (pp)
CONSUMPTION INVESTMENT EXPORTS IMPORTS GROSS DOMESTIC PRODUCT
Projections
12
8
4
0
-4
-8
-12
-16
-20
Scenario Scenario Scenario Scenario Scenario Scenario
1 2 1 2 1 2
2018 2019 2020 2021 2022
Sources: Banco de España and INE.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 20EMPLOYMENT WILL FOLLOW A SIMILAR TREND TO THAT OF GDP
Employment, in terms of hours worked, will follow a very similar trend to that of
economic activity, declining by more than 10% in 2020 and recovering thereafter.
The increase in unemployment will be contained by the use of furlough schemes and
greater inactivity in 2020 Q2, although the unemployment rate is expected to rise to
between 17% and 18% this year.
GDP GROWTH (%) AND CONTRIBUTIONS (PP) UNEMPLOYMENT RATE
(% of labour force)
HOURS WORKED PRODUCTIVITY PER HOUR GROSS DOMESTIC PRODUCT
%
Projections Projections
12 24
9
22
6
3 20
0
18
-3
-6 16
-9
14
-12
-15 12
Scenario Scenario Scenario Scenario Scenario Scenario 16 17 18 19 20 21 22
1 2 1 2 1 2
OBSERVED Scenario 1 Scenario 2
2018 2019 2020 2021 2022
Sources: Banco de España and INE.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA INTERNAL USE 21PUBLIC FINANCES: CHANGES IN GENERAL GOVERNMENT DEBT AND
DEFICIT
New spending measures are included (extension of furlough schemes until September,
minimum living income, fund for regional governments), which worsen the deficit in
2020-2022. The Next Generation EU programme is not included given the uncertainty
over its amount, structure and timing for Spain.
The deficit is expected to stand between -10.8% and -12.1% of GDP in 2020,
subsequently decreasing in the following years.
Debt rises significantly in 2020 and, to a lesser extent, in 2021-2022.
Scenario 1 Scenario 2
As a % of GDP 2019 2020 2021 2022 2020 2021 2022
General government
-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2
balance
General government
95.5 116.8 115.4 118.0 120.6 125.6 128.7
debt
Source: Banco de España.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA INTERNAL USE 22INFLATION WILL RISE AND THEN LEVEL OFF, HIGHLY INFLUENCED BY
CHANGES IN ENERGY
The overall inflation rate is expected to be negative in H2, gradually increasing and
levelling off around 1.1%-1.2% until end-2022:
progressively larger contribution from energy prices.
gradual increase in core inflation.
OVERALL INFLATION (%) AND CONTRIBUTIONS (PP)
Projections
3 3
2 2
1 1
0 0
-1 -1
-2 -2
2018 2019 2020 2021 2022
CORE INFLATION ENERGY FOOD ACTUAL HICP AND SCENARIO 1 SCENARIO 2
Sources: Banco de España and INE.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA INTERNAL USE 23COMPARISON WITH JUNE FORECASTS FOR 2020
REAL GDP. COMPARISON OF THE CURRENT SCENARIOS FOR 2020 WITH THE JUNE SCENARIOS
% y-o-y
0
-5
-10
-15
-20
-25
-30
2020 Q1 2020 Q2 2020 Q3 2020 Q4
Scenario 1 (September) Early recovery scenario (June) Scenario 2 (September) Gradual recovery scenario (June)
Sources: Banco de España and INE.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA INTERNAL USE 24CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 25RISKS SURROUNDING THE FORECASTS
Activity
(-) As regards the course of the pandemic:
• Possibility of more intense outbreaks over the coming quarters, entailing stringent lockdown
measures, with a larger impact on “social industries”.
• Possible delay in the discovery and/or distribution of an effective solution, which will have a
bearing on the path of recovery in the medium term.
(-) More protracted effects on productive capacity (higher levels of business insolvency and hysteresis
effects in the labour market).
(-) Possible lack of agreement in Brexit negotiations; China-US geopolitical/trade tensions.
(+) The launch of the EC’s recovery plan (“Next Generation EU”) approved on 27 July, above all in the
second half of the projection horizon.
Prices
(-) Materialisation of downside risks to activity.
(-) Deanchoring of inflation expectations
(+) Cost increases associated with the possible introduction of hygiene and sanitary measures in
some productive processes.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA INTERNAL USE 26CONTENTS
1. Overview
2. Scenario description
3. Developments in economic activity in the short term
4. Scenarios for the Spanish economy in the period 2020-2022
5. Risks surrounding the scenarios
6. The macro impact of the Next Generation EU programme
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 27MACRO IMPACT OF NEXT GENERATION EU PROGRAMME (I)
In July the European Council resolved to create the Next Generation EU (NGEU) fund
to address the impact of the COVID-19 crisis and speed up the digital and ecological
transition.
Government estimates indicate that Spain would be eligible for funds of €140 bn
(12.6% of GDP), 47% in direct grants and the remainder in loans.
These funds are not included in the projections, as there is still great uncertainty as
to the amount and composition of the funds and the time frame.
Instead, their potential macroeconomic impact has been calculated in accordance with
different assumptions on the specifics of the programme for Spain:
the time frame for the projects (early or late implementation);
the grants / loans split; and
the type of projects to be funded (investment or other expenditure).
The uncertainty in the empirical evidence on the scale of the fiscal multiplier has also been
considered using a range of values (investment 0.8-1.3, other expenditure 0.4-0.7).
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 28MACRO IMPACT OF NEXT GENERATION EU PROGRAMME (II)
Four simulation exercises have been performed using the MTBE model for a
cumulative standardised stimulus of €10 bn (0.9% of GDP):
A combination of assumptions most conducive to economic growth – exercise 1 – boosts GDP
by 0.2-0.3 pp on average in 2021-23.
Late implementation – exercise 2 – would delay the maximum impulse and the expansionary
effect on 2021-23 would be more moderate.
If the funds are received via loans – exercise 3 – the additional cost would drive up the deficit and
debt and thus limit the increase in GDP.
Lastly, if the funds were applied to other expenditure – exercise 4 – which according to the
empirical evidence generates a smaller multiplier effect, the impact on GDP would be lower.
In short, the impact of the NGEU programme on recovery will depend on the correct
choice and implementation of the projects to be funded and on their capacity to
strengthen long-term growth.
Effects on GDP and public debt of the Next Generation EU programme under alternative assumptions (a)
GDP Public debt (% of GDP)
Percentage differences in level 2021 2022 2021 2022
Exercise 1: “early implementation” + “grants” + “public investment” 0.19 − 0.3 0.21 − 0.35 -0.22 − -0.35 -0.35 − -0.57
Exercise 2: “late implementation” + “grants” + “public investment” 0.02 − 0.04 0.08 − 0.13 -0.03 − -0.05 -0.1 − -0.18
Exercise 3: “early implementation” + “loans” + “public investment” 0.14 − 0.27 0.15 − 0.29 -0.1 − -0.2 -0.09 − -0.18
Exercise 4: “early implementation” + “grants” + “current expenditure” 0.06 − 0.09 0.12 − 0.19 -0.07 − -0.11 -0.18 − -0.29
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA USO INTERNO 29THANK YOU FOR YOUR ATTENTION DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA
APPENDIX DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH 31
FINANCIAL AND INTERNATIONAL SETTING ASSUMPTIONS
PROJECTION ASSUMPTIONS
September 2020 projections
Annual rates of change, unless otherwise indicated
2019 2020 2021 2022
International environment
Global output 2.8 -4.2 6.1 3.7
Spain's export markets 1.5 -13.1 7.3 4.3
Oil price ($ per barrel) (level) 64.0 42.1 45.9 48.5
Monetary and financial conditions
Dollar/euro exchange rate (level) 1.12 1.14 1.19 1.19
Nominal effective exchange rate
vis-à-vis non-euro area countries 116.4 117.7 121.4 121.4
(2000 level = 100)
Short-term interest rates
-0.4 -0.4 -0.5 -0.5
(3-month euribor)
Long-term interest rate
0.7 0.4 0.4 0.6
(10-year bond yield)
SOURCES: Banco de España and ECB. Cut-off date for the assumptions: 10 September 2020.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 32PROJECTIONS 2020-2022
September 2020 projections (a)
Scenario 1 Scenario 2
Annual rate of change in volume terms and as % of GDP
2019 2020 2021 2022 2020 2021 2022
GDP 2.0 -10.5 7.3 1.9 -12.6 4.1 3.3
Private consumption 1.1 -11.2 9.4 1.7 -13.1 5.5 3.2
Government consumption 2.3 5.4 -1.3 -0.1 5.6 -1.2 -0.5
Gross fixed capital formation 1.8 -19.5 6.0 5.3 -21.9 2.4 6.5
Exports of goods and services 2.6 -20.7 11.5 6.2 -25.2 7.4 8.0
Imports of goods and services 1.2 -18.7 8.4 6.6 -22.0 4.9 7.3
Domestic demand (contribution to growth) 1.5 -9.3 6.2 1.8 -10.9 3.3 2.9
Net external demand (contribution to growth) 0.5 -1.2 1.1 0.1 -1.7 0.8 0.4
Harmonised index of consumer prices (HICP) 0.8 -0.2 1.0 1.2 -0.3 0.8 1.1
HICP excluding energy and food 1.1 0.7 0.8 1.0 0.6 0.5 0.8
Employment (hours worked) 1.5 -11.9 7.0 1.6 -14.1 3.8 2.7
Unemployment rate (% of labour force) (b) 14.1 17.1 19.4 18.2 18.6 22.1 20.2
National net lending (+)/net borrowing (-) (% of GDP) 2.3 1.7 2.1 2.1 1.1 1.3 1.5
General government net lending (+)/net borrowing (-) (% of
-2.8 -10.8 -7.0 -5.8 -12.1 -9.9 -8.2
GDP)
General government debt (% of GDP) 95.5 116.8 115.4 118.0 120.6 125.6 128.7
SOURCES: Banco de España and the INE. Latest published QNA data: 2020 Q2.
a. Projections cut-off date: 10 September 2020.
b. Annual average.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH – BANCO DE ESPAÑA 33You can also read
