Temporary layoffs, long-term unemployment, falling GDP: economic impact of Covid-19

The coronavirus has had a huge impact on all aspects of life, not least with the daily rising death count and strain on the health services. 

But another side effect of the virus is the halting of the economy. Since the state of alarm was introduced on March 14, non-essential work places have temporarily closed their doors, putting plenty of businesses who rely more heavily on immediate cash flow in risky positions. 

As of April 16, Catalonia has registered temporary layoff requests (ERTOs, in Catalan) from more than 90,000 different companies since the beginning of the covid-19 pandemic, affecting 668,104 workers who are temporarily unemployed. 

The number of people temporarily out of work surpasses the highest figure seen during the financial crash that began in 2008. 

This week, some firms gradually began to go back to work, as Spain eased off on some of the confinement measures. 

People on temporary layoffs already represent 18.9% of the employed population. 

The Catalan government forecasts that the impact of covid-19 will "double" unemployment, which stood at 10.4% in the last quarter of 2019. President Quim Torra also announced that his administration has forecast a "double-digit" fall in GDP, warning that "the figures could be even worse." 

According to Torra, one of the sectors that will be "most devastated" by the crisis will be tourism, for which he has expressed "enormous concern." The president said that it would be one of the areas in which the government would "need to put more aid."

By sectors, the most affected is the area of ​​services with more than 85% of the filings and 70% of the workers. In total, 73,641 companies in this sector have submitted ERTOs for 474,539 people affected. 

Next is industry, with 7,148 temporary layoff submissions and 123,796 people affected. Construction comes next in the lift, while the fourth worst affected sector is agriculture.

IMF predicts drop in Spain’s GDP

The International Monetary Fund (IMF) forecasts a fall of 8% in the Spanish GDP in 2020 due to the crisis caused by covid-19. The new forecast is down by almost 10 points from January, which estimated that the Spanish economy would grow by 1.6%. 

Spain, which is also projected to reach 20.8% unemployment by 2020, will thus be the second worst affected European state by pandemic, only behind Italy, where the IMF predicts a fall of 9.1% in the GDP. 

Despite the decrease in GDP for this year, the body expects the Spanish economy to recover in 2021 with a growth of 4.3%. Globally, the IMF predicts a fall in GDP of 3% this year and a growth of 5.8% in 2021.

The crisis will also significantly increase Spain's public debt and deficit. Further forecasts from the IMF say Spain's deficit will reach 9.5% of GDP by 2020, more than triple that of 2019, when it registered at 2.6%. According to the institution, the deficit will drop to 6.7% by 2021, when the IMF predicts that the economy will recover. 

Covid-19 will also increase Spain's public debt to 113% of GDP this year, which is well over 95% last year. In addition, the agency estimates that public debt will continue to rise in 2021, to 114.6% of GDP.

Spain's public debt forecast is 16 points above the European average, which stands at 97% of GDP.

The coronavirus crisis will thus eliminate Spain's fiscal adjustment exercise in a decade to sanitize public accounts and meet EU criteria, which has temporarily suspended fiscal rules in the wake of the coronavirus emergency.

Consumer price index

The Consumer Price Index (CPI) in Catalonia in March saw a flat growth of 0%, eight decimals less than the variation in February. 

According to data released on Wednesday by the National Institute of Statistics, this decline is driven by a fall in the price of fuel and supplies such as electricity and diesel. 

On the other hand, the sectors with the highest prices in the month of March were the restaurant and hospitality industry, and agri-food. 

In the whole of Spain, the CPI also experienced a zero change during March, seven decimals less than the previous month.

Taxe moratorium for self-employed and SMEs

Economists are celebrating that he Spanish government has approved a one-month extension on the date that self-employed people and SMEs have to pay their quarterly taxes. 

Self-employed people and small and medium-sized enterprises now have until May 20 to pay their taxes, a month later than the previously planned deadline. 

However, the General Council of Economists regretted that the moratorium is still “very short,” as well as the fact that only companies with a turnover of less than €600,000 are accommodated. 

According to the entity, this is equivalent to a third of what the European Commission considers as an SME. The entity also expresses their disapproval of other measures helping businesses that they have been calling for, such as the fractional calculation of corporate income tax, are now being delayed. 

Spanish treasury minister, Maria Jesús Montero, hinted that they would be approved at a press conference last Friday, and then announced that module-paying freelancers could temporarily give up this system and make straight-through fractional payments on a temporary basis.

The president of the General Council of Economists, Valentí Pich, acknowledged that the measure passed on Tuesday is "commendable" considering the situation with which the public accounts are, but has "limited scope," as "it is a simple moratorium of a month, not a pardon."