The economy of Spain is suffering the greatest economic impact derived from the covid-19 pandemic.
The annual decline in GDP will be around 12%, the largest contraction on the continent , even surpassing countries that are more dependent on tourism. However, there may be a strong economy in Europe that takes even longer than Spain to close this gap, that is, to recover the GDP levels prior to the covid.
The economy of the United Kingdom, the second largest in Europe, will have to face Brexit ( increasingly uncertain ) while fighting the covid, which will greatly slow down the recovery of the country, taking longer than Spain to recover levels 2019 (China for example will grow this year and will leave the covid-19 as a thing of the past ).
Some of the latest economic forecasts published by relevant organizations show this.
In November, the European Commission published its new economic projections for 2020, 2021 and 2022 announcing a downward revision of the Spanish forecasts, which leave the country as the worst hit in Europe with a GDP collapse of 12.4% for this year, while growth will be 5.4% in 2021 and 4.8% in 2022.
With these data it can be calculated that by 2022, the economy of Spain will still be around 3.6% below pre-crisis levels. Other countries like Germany could complete the recovery even in 2021.
In the case of the United Kingdom, the EC forecasts a contraction of 10.3% of GDP in 2020 (two points less than Spain), but the recovery will be especially slow, with growth of 3.3% in 2021 and 2, 1% in 2022.
According to the EC’s own calculations, UK GDP in 2022 will still be 5% below 2019 levels. As far as forecasts are made, it will take longer for the British economy than for the Spanish to fully recover. Public debt will continue to grow until reaching 113.7% in 2022. Spain will receive a stronger blow , but it will pick up earlier.
The Brussels document highlighted that investment in the United Kingdom will be weak for a longer time, given the regulatory changes resulting from Brexit (the United Kingdom’s exit from the EU), which will entail a process of adaptation and uncertainty of several months or even years .
“The recovery in 2021 is expected to be moderate, assuming in this forecast that trade relations between the EU and the United Kingdom will be based on the most favored nation ( Most Favored Nation ) rules of the WTO from early 2021.
Although the private consumption driving most of the rebound in 2021, business investment is expected to take longer to recover due to the longer-term effects of the pandemic and the need to adapt to new, significantly less beneficial trade relations with the EU. ” , sentences the note of the EC.
The economists of Deutsche Bank go further, which in their new projections improve the data for the euro zone while worsening the recession in the United Kingdom in 2020 to -11.3% (from -10.2%).
Despite everything, these experts believe that Brussels and London will sign a minimum agreement before the end of the year, which will mitigate the blow somewhat. In addition, the islands could have a large dose of vaccines before other European countries, which will help growth in 2021, which will be 4.6%.
However, for the year 2022, analysts at the German bank forecast GDP growth of only 2.8%. “Even if a free trade agreement (between the UK and the EU) is signed and sealed before the end of the year, a major trade shock is still looming for the UK.
The cost of this type of deal is on the UK’s GDP Will be around 0.6 percentage points, largely due to non-tariff barriers that will come into effect from next year. For the EU, we estimate that the trade impact will be practically negligible, around 0.2 points percentage “, they assure from Deutsche Bank.
On the contrary, in the case of Spain the economists at Deutsche Bank see the arrival of an effective and massive vaccine as a lifeline for the economy . The bank has reduced the fall in GDP for this year from 13.7% to 12.1%, while it has raised growth for 2021 to 6.3% (compared to 5.5% previously) and 6 , 4% in 2022 (compared to 6.1% of the previous estimates). If the script written by DB analysts is fulfilled,
Spain’s economy would be closer than the UK to recovering all the lost GDP sometime in 2022, the German bank’s projections show.
The fat of Brexit comes now. From the Institute of Fiscal Studies of the United Kingdom (IFS for its acronym in English), they explain that Brexit continues to be a substantial economic challenge for the United Kingdom.
The options currently on the table appear to be restricted to reaching (at best) a small trade deal or a no-deal exit (at worst). “We anticipate that the first case would leave the UK economy 2.1% smaller in 2021 than in a hypothetical case where the transition period continues indefinitely; a no-deal exit could cause production to contract by 0, 5-1.0% additional “, highlights the study.
IFS economists believe that “most of the economic adjustment related to Brexit is yet to come .
The weakness of the British pound since 2016 has provided an incentive for many companies to maintain their operations in the United Kingdom, even if they are not viable in the long term. However, the low investment to date could be reflecting some long-term adjustment, it also reduces the economic ties of foreign companies with the United Kingdom.
Therefore, the adjustments related to Brexit, now, they could be more important. “
Both Covid-19 and Brexit are likely to cause an economic reconfiguration in the medium term, while it may generate some disruption in the short term.
“The UK job market, in particular, has been more capable of adapting during previous recessions than other countries. Still, the ‘double whammy’ of COVID-19 and Brexit will make adapting to the new normal a big deal. challenge “, say these experts.
Evil of many, consolation of fools , the saying goes. That an economic power like the United Kingdom will take longer than Spain to heal its wounds from the recession is not good news for the European economy in general.
Furthermore, it is essential to bear in mind that London faces a doubly uncertain future. If Brexit was already a complicated matter and fraught with risks for the economy, the overlap with the Covid-19 crisis amplifies those dangers.