Bank of Spain sees 0.4% Jan-March GDP drop, trims 2021 recovery estimate

Spain’s economy is likely to shrink 0.4% this quarter after two straight quarters of recovery due to restrictions imposed to tackle the third wave of COVID-19infections, the Bank of Spain said on Tuesday as it lowered its full-year growth forecast.

After a record 11% slump last year, the central bank expects gross domestic product to expand between 3.2% and 7.5% this year, with its central scenario pointing to 6% growth, down from6.8% in its previous outlook released in December.

In the first quarter, its forecast ranges from a 0.9%contraction to a 0.4% expansion from the preceding three months, when Spain grew 0.4%, beating expectations. Its central scenario is a 0.4% contraction.

“The impact of the third wave of the pandemic at the start of the year has cooled forecasts and shifts the upturn in economic activity to the second half,” it said, adding that business “reactivation” in March could still surprise positively.

“In the second quarter we clearly see positive growth,” Bank of Spain chief economist Oscar Arce told reporters, expecting “a strong rebound” in the second half of the year thanks to the coronavirus vaccination campaign that is likely to see most restrictions lifted by the end of 2021.

The effectiveness of vaccines has dispelled some of the uncertainty, but it still remains high, the bank added, explaining also that private consumption will drive this year’s rebound, with a likely 8.8% increase thanks to savings accumulated last year.

A slower than expected absorption of EU rescue funds this year is also likely to weigh on growth, it said, but should boost investment during 2022. Next year, the bank predicted GDP growth in a higher range of 4.6%-5.5% than its previous forecast of 3.9-4.8%.

Still, the tourism-dependent economy will not return to its pre-pandemic levels until 2023, when foreign tourism numbers are likely to recover their 2019 peaks.