By Aleksandra Petrovic, political researcher working at Dow Jones in Barcelona
The coronavirus pandemic has brought about a specific economic crisis unlike any other in recent times. Unlike the usual culprits such as stock market crashes and credit crunches, this impact was wilfully brought on by governments in an effort to prevent another catastrophe: the potential deaths of their citizens in the tens of thousands due to a new fast-spreading virus. The extremely rigorous measures imposed on citizens’ wellbeing have tipped the scales and propelled national economies into a downturn that might bring on the worst recession since the Great Depression. The country that has been most heavily impacted by this situation in Europe is Spain, with over 200,000 people infected and more than 20,000 dead.
At the end of the financial crisis in 2008, Spain began its slow painful recovery from an economic situation that had led to over a quarter of its workforce being unemployed. From 2013, Spain’s economy started to improve at a faster rate, managing to achieve its first foreign surplus in three decades. The economy continued strong, allowing its unemployment rate to drop to more manageable levels at just under 14%. However, with an improving economy came the undesired side effects, such as the large, unsustainable influxes of tourists, and rent prices that shot up faster than resident’s incomes. From 2013 until end of 2019, salaries in Spain increased on average by only 1.6%, compared to rental prices that increased by 50%. For example in Barcelona, flat-sharing became the standard go-to option for the vast majority of people, whilst living in a modest studio apartment on one’s own became a luxury. Locals who wanted to maintain the same standard of living were pressured to move out of cities into smaller surrounding villages that were friendlier towards their budgets. Foreigners from Northern European countries rushed to the Catalonian capital to buy property that from their perspective was more affordable than in their home countries. Barcelona lost its reputation as the city of affordable property investments and instead became a metropolis of overpriced real estate.
This was a tense bubble that was growing steadily every year without any indication of bursting anytime soon, until the COVID-19 alarm struck. Spain’s authorities passed measures that ushered its population of 46 million people into strict quarantine in a matter of days, abruptly cutting off the flow of employees to their workplaces, and pressured the institutions of the hospitality industry to shut down for what was claimed would last a couple of weeks. Those couple of weeks kept being extended over and over, until many private businesses had to declare their permanent closures due to the lack of trade. Hundreds of thousands of people all over the country were laid off. To counteract this, Spain’s government passed measures that prevented employers from using the quarantine situation as an excuse to fire their staff. This resulted in employers continuing to assign temporary layoffs instead, which trade unions and economists have warned might become permanent.
As of date, the quarantine has been assigned to last until the beginning of May, with further possibilities of extension. The government has slightly eased up on the restrictions, allowing people in specific industries such as manufacturing and construction to return to work under firm safety guidelines, but the vast majority of the workforce is still on hold.
When the quarantine eventually ends, the question would be how many have lost their jobs and how bad of a hit the Spanish economy had to take as a result of the government’s good intentions. Recovery would be slow, which would be reflected in companies reluctantly opening new positions and posting job advertisements as they test the waters of dampened consumer interest. Many restaurants and leisure venues would have permanently closed down under the pressure of the quarantine, which will force employees in these sectors to search for work elsewhere. Due to fears of future pandemic outbreaks air travel will be limited, at least until a vaccine is found, which will cut down revenues from tourism and foreign investment.
Finally, the notorious property and rental prices that soared higher than the people’s ability to afford them will finally slow down and eventually start to decrease due to the lack of interest to remain in cities are lacking in job opportunities. Airbnb properties that profited from the bustling tourism in Spain will either have to reduce their prices or stop being available to tourists, with greater probability being the latter. With the competition of Airbnb being out of the way, landlords will start trying to attract local residents with more reasonable rental prices.
The economy will recover, perhaps faster than expected. Some experts are optimistic, saying it will return to normal in a year, with the introduction of a vaccine that will return tourism the following summer and once again inject billions of euros into the economy.
The big issue is that the virus is a fast mutating one, which puts pressure on the time for a vaccine to be developed. The situation brings up a question of whether the search for a vaccine is futile. It is also possible that there will be a surge in cases once autumn rolls in, which would lead to a second quarantine and the Spanish economy will have to absorb another punch.
For now, the country’s main focus is to get back on track at the first sign of waning coronavirus cases – to reopen schools, allow everyone to go back to work and to salvage whichever small businesses can be saved. Spain’s economy is sinking in a crisis quicksand, and any inappropriate response might just as well plunge it deep into another recession.