The number of newly reported Covid-19 cases in Spain have dramatically spiked in the last few weeks following the gradual relaxation of lockdown measures over the past few months. In late April, the government began to gradually ease its lockdown restrictions after a sustained decline in the number of newly reported cases across the country. While schools and universities remain closed, factories, construction sites and non-essential businesses were allowed to reopen in an effort to the restart economic activity. The spike in new Covid-19 cases has been reported across Spain but particularly in the popular tourist destination of Catalonia, where regional authorities warned a lockdown could be re-imposed if the situation worsens.
The economic costs of the lockdown measures have been severe; according to the Instituto Nacional de Estadistica (INE), the country’s GDP declined by 22.1% year on year in Q2 2020, marking the worst performance on record. The real GDP growth forecast for 2020 has been revised to -10.7% as of the August market consensus, down from 1.6% in February. However, the Bank of Spain expects a worse outcome, with real GDP forecast to contract by 15.1%. In July, the INE said that the country’s unemployment rate rose to 15.3% in the second quarter, with over a million people reporting to have lost their jobs during the quarter.
The construction sector had been recovering following the sharp contraction between March-April, according to the latest data released by Eurostat, construction output increased by 25% in May on a monthly basis, however, construction output fell by 24% in Q2 2020 on a quarterly basis. In a blow to the Spanish tourism sector, the British Prime Minister, Boris Johnson has announced that travellers returning from Spain would have to self-isolate for two weeks. The move is likely to severely curtail tourism flows from the UK. Spain has traditionally been the UK’s most popular tourist destination, the fall in tourism numbers will adversely impact the hospitality sector in Spain. With unemployment expected to rise further in the event of a second lockdown, outlook for the residential construction sector also remains bleak.
Before the outbreak of the virus, GlobalData had predicted 1.6% growth for Spain’s construction industry. However, as the virus intensified and Spain has been among the most affected countries in Europe, the forecast has been revised downwards to a contraction of 10.4%. While growth in the sector is expected to recover in the second half of the year, however with signs of a second outbreak appearing, the country could be forced into a second lockdown. In the event of a second nationwide lockdown, GlobalData is likely to revise the growth forecast for the sector downwards.