The yearly GDP has not yet recovered half of what was lost during 2020, and the growth figure is 1.5 points below the official forecast, with the economy slowing consumption in the last quarter of the year.
According to the GDP data released last Friday, Spain’s economy expanded by 5% in 2021. It’s a far cry from the 10.8% drop recorded in 2020 and represents the largest increase since 2000, if confirmed, growth will fall short of the level forecast by the Government for the second pandemic year, which pointed to 6.5%.
Indicated by the data released by the National Statistics Institute (INE), the economy will not recover in 2021 even half of the ground it lost in 2020, although we will have to wait until March 25 to have the definitive data.
The variation between the advance and the confirmed data could be greater than normal due to the fact that the volume of information advanced in today’s forecast has been lower than on previous occasions for reasons related to covid and to the availability of some of the sources, the statistics show.
After the brutal 10.8% drop in production in 2020 due to the pandemic, activity resumed last year despite the restrictions and problems still caused by the coronavirus. This is a robust growth rate, the highest in 21 years, and very positive considering the burdens that covid still imposes on the economy.
However, it also represents a figure lower than the 6.5% anticipated by the Government and far from the 7.2% (9.8% including European funds) that it came to draw for the 2021 Budget.
The Effects of the Pandemic
The pandemic is still putting a strain on the economy, making it difficult to fully recover the gross domestic product. At the end of December, there is still 4% to recover the quarterly pre-pandemic levels, and 6.8% if we compare annual averages.
In other words, more than half of what was lost to the pandemic has yet to be recovered on an annual comparative basis. If the end of 2021 is taken in comparison with the peak of the crisis, one-fifth of what was lost would be needed to restore the previous levels.
Employment and tax revenue have recovered despite the fact that last year tourists consumed 75% less; there are still outbreaks that restrict movements and therefore affect the hotel and catering trade and commerce; the lack of supplies hurt above all car sales, which weigh heavily on consumption, and inflation began to take its toll on purchasing power: although in euros more is consumed, in real volumes the amount is lower.
Despite the omicron variant, whose expansion started in November, the economy has held up quite well during the fourth quarter of the year with a significant 2% quarterly advance. Data for October and November were quite good.
Sales recorded by the Inland Revenue even exceeded pre-crisis levels. But from the December long weekend onwards, activity suffered as a result of the contagions. In fact, GDP has slowed slightly, growing slightly less than the 2.6% of the third quarter.
According to the INE report, in this context of a resurgence of covid and rampant inflation, household consumption would have fallen by -1.2% quarter-on-quarter between October and December, a slump that has surprised analysts.
Government consumption also fell by -0.4%. On the other hand, investment in capital goods soared by 6.1%. And the foreign sector made a positive contribution as exports increased more (6.5%) than imports (3.5%).
Hours Worked in 2021 Increased by 2.9%
Compensation of employees grew by 6.8% year-on-year in the fourth quarter, seven-tenths of a percentage point higher than in the previous quarter. This was due, on the one hand, to the 6.5% increase (one-tenth of a percentage point more than in quarter three) in the number of employees, in terms of full-time equivalent positions, and the fact that average compensation per employee varied by 0.3%, compared to -0.3% in the previous period.
Employment in the economy, in terms of hours worked, registered a quarter-on-quarter variation of 0.2%. This rate is of greater magnitude in the case of full-time equivalent jobs (1.3%, 2.6 points less than in the third quarter) due to the reduction observed in the average number of full-time working days (-1.2%).
In year-on-year terms, hours worked grew by 2.9%, a rate four-tenths lower than in the third quarter of 2021, and full-time equivalent jobs grew by 6.4%, two tenths more, which means an increase of 1.12 million full-time equivalent jobs in one year.
The year-on-year change in unit labour cost (how much each worker costs the company based on his or her productivity) stood at 1.4% this quarter.
Activity is slowly but surely recovering other economic variables such as employment or tax revenues. Last year, the labour market recovered the level of employment prior to the pandemic, although there are still fewer hours worked than in 2019, which largely explains the difference between one data and another.
Tax collection beat all records by exceeding 223,000 million last year, although this has in favour the momentum of factors such as the emergence of income by paying more with card, inflation or income protection that has been made during the crisis.
The data published last Friday by the INE confirms that there is a certain decoupling between GDP and the employment and tax collection records, a fact that has been the subject of debate among economists. The Government has set up a committee to try to analyze this asynchrony.