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The IMF improves its forecasts for the large developed economies with only one exception: Spain

The International Monetary Fund (IMF) estimates that the coronavirus has launched into “extreme poverty“- that is, to live on less than 1 dollar with 61 cents a day – 90 million people, the equivalent of twice the population of Spain. It has caused the greatest crisis in history since the Great Depression that occurred 90 years ago. But even with everything, things are looking up. The collapse of the large economies will be less than expected in June. With very few exceptions. In the developing world, only India and the so-called ASEAN-5, that is, Thailand, Indonesia, the Philippines, Malaysia, and Vietnam.

In the industrialized world, there is only one country that does not improve: Spain. Su PIB caerá in 2020 a brutal 12,8%. It is the highest figure of the 17 major economies that the Fund always highlights in its analysis. And, although Spain will ‘bounce’ in 2021 as activity recovers after this year’s downturn, the rise will not imply a relief for the population. The best example of this is the unemployment, which climbed this year to 16.8% of the active population – one in six workers – and it will remain there in 2021 despite the fact that GDP will grow that year, according to the IMF, by 7.2%.

That 7.2% is by far the highest of the large economies examined by the Fund. Spain is also the country whose forecast for 2021 is revised the most upward. But that data is more of an optical effect. The decline in 2020 is so gigantic that the rebound in 2021 does not make up for it by any means. Thus, Spain will end 2021 with a GDP which is almost 6% lower than it had in 2019. Only Italy will be worse off.

Furthermore, if many economies have the possibility of experiencing what is known as a “rising scenario” – that is, things are better than expected – in Spain the opposite happens, due to the weakness of its business fabric and dependence on tourism. According to the IMF, up to 40% of the employment of SMEs in the restaurant and hotel industry is at risk not due to the confinement, but to the financial problems that these companies will have to face as a result of the crisis. In Spain, hospitality and catering, often in family establishments, are one of the main sources of employment in the tourism sector, which in total generates around 3 million jobs.

A less harsh recession

All of that is clear in the new report. ‘World Economic Outlook‘, presented today by the IMF. Already in the third paragraph of the Introduction, the document states that “we project a somewhat less severe recession (…) than in our June forecast. “This upward revision is due to three factors. One,” second quarter GDP results in large advanced economies, which were not as negative as had been projected. “Another,” the China’s return to growth, which has been stronger than expected. “And three,” the signs of a faster recovery in the third trimester “.

All this has been due, according to the Fund, to the massive state intervention, through “the monetary, fiscal, and regulatory responses” of the Governments, which “have maintained disposable income, protected the cash flows of companies, and maintained the supply of credit. “Otherwise, the world would have been plunged into a giant recession accompanied by” the financial catastrophe of 2008-2009 “. Well, according to the IMF, states have saved the world economy, putting her in a kind of ‘induced coma’.

The thing is some countries are in a deep coma. The drop in GDP of 12.8% in Spain is not the same as that of 4.3% in the United States, to cite two extreme examples. In general, European countries – inside and outside the EU – seem to have suffered the most crisis. Italy’s GDP will fall this year by 10.6%: that of Great Britain and France, by 9.8% each; that of Germany, 6%; and that of the euro area, 8.3%. Industrialized economies outside the eurozone are also collapsing: Canada, 7.1%; and Japan, despite having been one of the developed countries least affected by the virus despite its proximity to China, 5.3%.

All of these economies share something in common: its GDP will fall less than what the IMF expected four months ago. In the US, the upward correction is no less than 3.7 percentage points. In France and Italy – two of the countries hardest hit by the pandemic – 2.7 and 2.2 points.

The only exception is Spain, the only industrialized country whose GDP forecast does not change. Its collapse of 12.8% would be the equivalent of practically erasing the entire tourism sector at a stroke. There are only two other countries that register two-digit production falls: Italy itself (10.6%) and India (10.3%).

The country hardest hit by covid-19

In the context of Covid-19, every prediction has a huge degree of uncertainty. But, look where you look, the prospects for Spain are even worse than those of the others. The Fund’s report was closed two weeks ago, when the confinement of Madrid had not taken place and, in that sense, the most that the institution reaches is to affirm in a hasty “update” inserted at the last moment that ” at the end of September there were new spikes in places that had flattened the curve: Australia, Japan, Spain, and France “.

The report also notes that the economic impact of the coronavirus is very irregular, although it particularly affects “the most vulnerable people”. The IMF uses data on the use of Vodafone phones in several countries, including Spain, to detect how the mobility restriction particularly affects young people and women – in the case of the latter, because, when the Schools close, it is they who tend to take care of the children -.

The reasons for Spain’s vulnerability were already listed by the IMF to this newspaper in July: the country has suffered from the disease more than almost any otherIts main economic activity is tourism, and it has a business fabric of small companies with few capital reserves and little access to credit. The question, therefore, is not only the severity of the crisis in 2020, but the way out of it in 2021.

There, the panorama improves for Spain, although, more than anything, due to the ‘rebound effect’ derived from the statistical impact of returning to the ‘new normal’ after the brutal collapse of this year. The prediction is for a GDP growth of 7.2% in 2021, a figure very far from the sinking of this year. The way out of the crisis, thus, will be very slow in Spain. Above all, for the most disadvantaged.

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