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UPDATE 3-Spain falls into steep recession, tourism woes bode ill for rebound

Fri, 31st Jul 2020 08:09

(Adds details on recovery forecasts)

By Belén Carreño

MADRID, July 31 (Reuters) - The coronavirus crisis has
pulverised Spain's economy, triggering its worse recession since
the civil war, with the depressed state of tourism boding ill
for any hopes of a swift rebound.

Hit by one of Europe's worst pandemic outbreaks, followed by
one of its strictest lockdowns, the Spanish economy came to a
halt in March and stayed largely paralysed until the end of
June.

Figures from the National Statistics Institute showed on
Friday the economy shrank a historic 18.5% in the second
quarter, a drop so harsh it wiped out all the recovery the
southern Europe nation had managed to build up since the global
financial crisis.

The second-quarter contraction came after a 5.2% drop in the
first three months of the year, at that stage the worst quarter
on record. Historians say only the 1936-39 civil war hit the
economy harder.

While the government had hoped tourists travelling from
northern Europe and further afield would help the economy
rebound in the third quarter, those hopes have been stymied by
worries over the coronavirus, compounded by quarantines and
travel advisories.

"Not only has the Spanish economy been one of the worst hit
in the euro zone by the pandemic, it also looks set to make a
much weaker recovery than its neighbours", said analysts at
Capital Economics, pointing to a disappointing start to the
summer season.

GREATER BLOW

With the economy in a state of hibernation and most shops
closed until some started opening in May, private spending and
investment plummeted, inflicting a much greater blow on the
Spanish economy than on its European counterparts like France or
Germany.

Now the problem is tourism - an issue which is only set to
get worse after Germany on Friday put three Spanish regions,
including Catalonia, home to Barcelona, on its list of countries
designated high-risk for the novel coronavirus.

Though it insists this is not a second wave of the pandemic,
Spain has been grappling in recent weeks with a steady increase
in coronavirus cases, even if it is still far from the heights
of the pandemic.

"To support the recovery, it is essential to contain the new
outbreaks," Ana de la Cueva, secretary of state for the economy,
said after the second quarter data was released.

The third quarter, expected to mark the start of an
economic rebound, will instead be weaker than expected, said
Raymond Torres, chief economist of thinktank Funcas.

Torres said Spain might manage to rake in tourist income for
the whole of this year what it usually gets in the third quarter
alone. Spain depends on tourism for 12.3% of its economic
output.

Despite the sharp drop in activity, some sectors recorded
positive data, such as agriculture, driven by strong demand for
food. A stimulus package and health measures to combat the
pandemic also helped boost public spending.

The government has forecast a contraction of 9.2% in 2020 as
a whole, surpassing the fall during Spain's 2008-2013 financial
crisis, but expects 6.8% growth in 2021.
(Reporting by Belen Carreno and Joanna Jonczyk-Gwizdala
Writing by Belen Carreno and Ingrid Melander)

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