Is there a clear path ahead for Spain’s recovery?

Like many other economies, Spain’s has been hit hard by Covid-19. Gross domestic product for 2020 fell by 11% compared with 2019, according to the country’s National Statistics Institute.

Spain is hoping to receive around €140bn from the EU’s post-pandemic recovery fund, which will be directed towards efforts to boost its economy. This will be made up of an initial €70bn in grants between 2021 and 2023, and a further €70bn in loans from 2024 to 2026.

It has submitted plans, like other EU countries, to the European Commission for scrutiny before the funds will be released, although it has already begun spending in some areas.

Spain is expecting the funds to arrive towards the end of the year, later than initially hoped, which in part led to the government downgrading its economic growth forecasts for 2020 in mid-April, from 9.8% to 6.5%.

The recent regional assembly election in results in Madrid in early May could also complicate matters for Spain’s ruling Socialist Party (PSOE) and its economic plans. The conservative People’s Party took 65 seats out of the 136-seat assembly, double its share in the last regional elections. The PSOE of prime minister Pedro Sánchez saw its vote share decline by 10 percentage points and secured just 24 seats.

The result is likely to have significant consequences in the context of the country’s decentralised governance structure and Madrid’s position as the country’s economic powerhouse.

The end of Spain’s six-month national state of emergency on May 9 could provide a more immediate economic boost. Although Covid-19 restrictions remain in place, the most restrictive measures, such as curfews, have been lifted in the vast majority of regions and cities, and travel between regions is now allowed for the first time since October.

Spain’s banks would certainly benefit from an economic boost. All four of its largest banks saw their pre-tax profits plunge in 2020 compared with 2019. Spain’s largest bank, Santander, reported its first annual loss, with a pre-tax loss of $2.562bn. Its results were due to provisions for bad loans during the pandemic and writedowns in the value of some of its businesses. Fourth largest bank Sabadell also recorded a pre-tax loss of $149m.

Return on equity, a key measure of profitability, has slumped at all four banks since 2018.