Reference macroeconomic scenarios for the Spanish economy after Covid-19

COVID-19 has spread globally, and most countries have adopted extraordinary measures to mitigate its effects on public health. These include bringing part of economic activity to a standstill and the confinement of the population, and they are exerting a most severe contractionary effect on GDP and employment worldwide. While the resolute action of national and supranational authorities will contribute to alleviating these effects, their magnitude remains, for the moment, highly uncertain. This article develops a set of scenarios for the Spanish economy that consider various alternative assumptions about the duration of the confinement and the persistence of the shock the economy has undergone. In this connection, two different methodologies are used. The first rests on an assessment of sectoral output losses as a result of the epidemic containment measures; the second is based on simulations of the main transmission channels of the economic effects of the pandemic, using the Banco de España Quarterly Model (MTBE). The results of the different scenarios point to reductions in Spanish GDP in 2020 unprecedented in recent history. That said, the scale of the reductions is highly sensitive to the starting assumptions, over whose plausibility there is much uncertainty. Once the height of the crisis is behind us in the short term, activity should begin to recover at a rate which will in any event depend on how the health risk is perceived in the coming months and on the capacity for recovery of that part of the productive system most damaged by the current shutdown. With a view to 2021, foreseeably the Spanish economy will substantially - but not fully – recoup the course of activity and employment expected before the pandemic.