It is a sign of how savagely the coronavirus crisis is hitting Spain’s economy that Josep Tres’s business is today doing little more than fending off rodents.
Mr Tres and his family have run Netexpres, a cleaning firm, for 40 years. Before the pandemic took hold, the company employed some 400 workers from its base near Barcelona airport. Over half have now been furloughed as shopping malls, sports venues, gyms, restaurants and government offices have been closed down.
Normally 30 staff clean two huge installations that prepare 10,000 aeroplane and airport meals a day. But now, with the airport stilled, “it is just two people cleaning for four hours, to keep the rats away”, says Mr Tres.
He worries that an already dramatic surge in Spanish unemployment will rise still further as the country’s three-week-old lockdown goes on and companies fold. “We’ve survived a lot of things: recession in 1992, the financial crisis,” he adds. “But I’ve never been so scared.”
UniCredit research published this week suggests that Spain is set to suffer more from the crisis than any other European economy, estimating a 15.5 per cent decline in gross domestic product this year and a fiscal deficit of 12.5 per cent of GDP.
Other economists argue that a 10 per cent drop in output and a deficit of 10 per cent of GDP are likely. That would bring total debt to at least 120 per cent of GDP — up from a previous level of just under 100 per cent — even before measures to rebuild the economy are contemplated.
Social security figures last week showed that more than 800,000 people have already lost their jobs out of a labour force of around 19m. Meanwhile the government is supporting the income of some 6m people, whether through temporary lay-off schemes, tax holidays or increased benefits. Unemployment in Spain was already 14 per cent before the crisis hit.
Such figures are a big reason why, despite resistance from northern Europe, Madrid is pushing for mutualisation of debt and EU-backed “coronabonds” — an agenda on which Eurozone finance ministers signally failed to agree in an all-night meeting that ended on Wednesday morning.
“The general fact that we are looking at a contraction in the economy, although we can’t yet know the size — as well as the extraordinary government spending — means that there will be a rise in public debt as a proportion of GDP,” said Cristina Herrero, the president of Spain’s Independent Authority for Fiscal Responsibility, the equivalent of the UK’s Office for Budget Responsibility.
“The limited fiscal space relative to other countries is a big part of the reason why Spain wants eurobonds, coronabonds, mutualisation of debt.”
She added in an interview that, before the economic impact of the crisis could be determined, “we need to know how long the shutdown is going to last, whether there will be another outbreak, and what measures are going to be in place when people do go out of their homes”. The OECD estimates that for each month of lockdown, countries can expect to lose two percentage points of annual growth.
But Ms Herrero also emphasises that Spain’s economy is particularly vulnerable, because of “the high proportion of people on temporary contracts; the role of the service sector, including tourism, which has been very badly hit; and the importance of small and medium-sized enterprises”.
More than a quarter of Spain’s workforce is on temporary contracts, the highest level in the EU, and at times of stress the easiest way for companies to cut back on labour costs is to sack such people rather than to reduce salaries or the working week. According to last week’s figures, the number of people on temporary contracts has already declined by 17 per cent, compared with just a 2 per cent fall in permanently employed staff.
Meanwhile, tourism, which in 2018 contributed 12 per cent to GDP and provided 13 per cent of all jobs, has ground to a virtual halt, as have many other services.
Small and medium-sized companies, which represent more than 70 per cent of employment, well above the EU average, are particularly vulnerable. Micro-companies of fewer than 10 employees, which account for more than 40 per cent of all jobs outside the financial sector, are even more exposed.
Yet, with its limited fiscal room for manoeuvre, Spain has been less generous than other European countries. When Pedro Sánchez, the country’s Socialist prime minister, announced 10 days ago that the government was halting all work deemed non-essential for two weeks, the bill was passed to the private sector. Companies are required to go on paying salaries on the understanding that their employees will make up lost hours before the end of the year.
A comparison by Bruegel, the think-tank, suggested that by the end of March Spain had put in place discretionary fiscal measures and guarantees worth around 12 per cent of GDP, compared to 18 per cent in the UK, 23 per cent in France and closer to 60 per cent in Germany.
“In a crisis like this, the Spanish economy cannot take on more debt; it can’t,” said Mr Sánchez last month as he called for the EU to underwrite a latter-day Marshall Plan to reconstruct the economy. He added that the last financial crisis also hit southern Europe harder than the north.
Spain only emerged from that crisis after bailing out the banking sector, reducing workers’ wages, and shrinking companies’ balance sheets. Mr Sánchez is acutely aware that the experience also finished off his immediate predecessor as Socialist prime minister.
“The ghost of the global financial crisis is haunting Spain’s relations with Europe,” said Ilke Toygur, at the Elcano Royal Institute, a Madrid-based think-tank. “Sánchez and his government desperately need more help from the EU for the recovery and reconstruction that the Spanish economy needs — on which his own political survival depends.”
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