The macroeconomic effects of COVID-19 in Spain: A comparative analysis

Abstract

The coronavirus pandemic has left our economy in an unprecedented situation. The impact has been massive and global, and although it is expected to be temporary, it could cause structural damage. Some characteristics of our economy, such as the sectoral specialisation of our productive system, the small average size of firms and the high degree of seasonality, make it more vulnerable than other countries. Such a situation initially requires immediate and decisive economic policies. These policies must be limited in time, until employment and economic activity regain momentum after the imposed closure, and coordinated at the international level. The aim is to mitigate the loss of income of households and firms affected by the crisis and to prevent the temporary shock from having lasting effects over time. Fiscal policy is the most appropriate tool for this purpose. Monetary policy must also be active to ensure adequate financing and liquidity conditions for economic agents. Policies should encourage financial institutions to continue to ensure that credit reaches households and firms, thereby maintaining the financial stability of the system. Social policies must also be implemented to help the sectors most affected by the crisis. As the crisis is global, a coordinated response is also needed at the international level. At the European level, a common response is needed, supported by a risk and financial resource sharing mechanism and a global banking union. Once the tipping point of this crisis is passed, economic policies should reduce structural deficits and public debt and promote long-term growth.