The Spanish economy: tourism as a vaccine | Business
Recently, the economic debate has focused reasonably on future issues, such as European funds, public debt management and the type of reforms the country needs. But the present is dominated by a more real factor: the mobility of people. With the advent of the vaccine, we thought they would emerge from the prolonged standstill and that foreigners would resume their trips to our country, a change of direction that would boost the recovery. However, the delay in distributing the antidote makes it necessary to revise expectations.
First of all, the year started with signs of weakness, as evidenced by the contraction that the European Commission has forecast for the eurozone – a drop in GDP of 0.9% in the first quarter, after another 0.7% decline in the first. Over the past year. Economic indicators also indicate a slight contraction in our country, although the decline in the third wave of infections heralds a gradual improvement in the coming weeks. In all likelihood, growth won’t take off until the summer – very limited growth is expected in the first half.
Additionally, as summer approaches, any delay in immunization – or loss of effectiveness against mutated versions of the virus – will have a disproportionate effect on the economy. Only in the third quarter more than 30,000 million euros were entered through tourism in a regular year. Last year, a quarterly entry was introduced, and it wouldn’t be the worst-case scenario if the result was repeated in 2021.
The indirect impact of tourism is greater. First, because the sheer uncertainty driving consumption down may subside as the movement returns. Second, and more fundamentally, because the expected multiplier effect from European funds depends closely on the choice of investment projects, but also on the constraints in effect when putting the plan into action. Therefore, the priority can only be to improve the health situation and its natural outcome, to lift measures that limit movement and supply. Otherwise, the broad fiscal stimulus may lead to more savings rather than more spending. Even some analysts, such as Larry Summers in the case of the United States, expect a rebound in inflation if fiscal policy does not take into account weak productive fabric. Although an inflationary spiral is unlikely in Spain, the sequence of actions must be taken into account.
Among these most urgent factors is the granting of assistance to the productive apparatus and employment, so that the conditions of mobility are restored. The tourism sector is a reasonable candidate for these grants due to its importance and because the risks of supporting companies that do not need them are lower than other sectors. Over time, it will be necessary to identify businesses that are unsustainable, requiring a solution rather than an injection of money to maintain activity – under the weight of bank balance sheets and reducing the availability of credit for dissolving companies, as happened in Italy -.
There are also specific procedures, such as Health Passport or campaigns targeting markets like the UK. Greece has just concluded an agreement with Israel to facilitate travel this coming summer. And let’s not forget the potential for inbound tourism that could save the season in some destinations.
According to Funcas, the economy could grow by as much as 7% if the movement recovers in intensity over the next summer, but roughly three points lower if it stays below the minimum. There is a big difference that shows that, with tourism, we risk the potential for a sudden turnaround in the economy.
The trade deficit decreased by nearly 60% in 2020, mainly due to lower oil prices and a sharp drop in the volume of imports compared to exports (12% versus 9.3%). The latter, in turn, was mainly driven by a clear decrease in national demand in Spain than in other European countries. The only sector whose exports increased in 2020 was agriculture. By geographical destination, there is an increase of 20% in exports to China.
Raymond Torres He is a business manager at Funcas. On Twitter: RaymondTorres_
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