Spain’s economy heads for recession with sharp second-quarter contraction, Bank of Spain says

© Reuters.  © Reuters.

By Jesús Aguado and Emma Pinedo

MADRID (Reuters) – Spain’s economy could shrink by a record 16%-21.8% in the second quarter due to the COVID-19 pandemic, before starting to recover in the second half of the year, the Bank of Spain said on Monday as it charted various economic scenarios.

The sharp contraction in April to June, which will come after a 5.2% drop in economic output in the first three months of the year, will drag Spain into a recession as a lockdown put into force mid-March hits the economy.

The central bank sees the economy starting to recover in the second part of the year, with GDP likely contracting by 9 to 11.6% overall this year, which is a more optimistic scenario than its latest forecast of a 9.5-12.4% contraction.

The first quarter’s 5.2% contraction was already the sharpest drop since the historical series began in 1970 and twice as much as the worst quarter of 2009, at the height of the global financial crisis.

“In the second quarter, the period affected by the pandemic’s containment measures are of considerably longer duration (…) and the decline in the economy will be significantly higher”, the central bank said despite the fact Spain started last month to gradually relax its confinement.

The central bank also envisaged on Monday a more severe, and less-likely, scenario where the economy could fall up to 15.1% in 2020, saying it cannot rule out “more adverse scenarios” due to the current uncertainty.

This worst-case scenario would take into account “intense episodes of new infections” which would require additional and strict confinement measures.

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