Spain’s govt cuts net borrowing target to $83.6 billion this year

The Spanish government has cut this year’s net borrowing target by 20 billion euros ($23.6 billion) to 80 billion euros ($83.6 billion), Economy Minister Nadia Calvino said on Thursday, citing European funds to be transferred to Spain during the summer.

“We’re making this decision based on three changes. First, the approval of the recovery plan (by the EU) and the first transfers of funds, lower needs from regions and thirdly the evolution of debt markets that have allowed us to have lower debt servicing cost,” Calvino told reporters.

Reuters reported last month that Spain and Portugal were likely to be able to reduce their government borrowing targets in the second half of this year.

Spain’s economy expanded an estimated 2.4 per cent in the second quarter as it recovers from the impact of the COVID-19 pandemic and is on course to growing 6 per cent this year and 7 per cent in 2022, Prime Minister Pedro Sanchez said in a Reuters Newsmaker event during a trip to the United States on Wednesday.

Meanwhile the Spain’s economy contraction in the first three months of the year was slightly less pronounced than previously estimated.

The Spanish gross domestic product shrank 0.4 per cent in the first quarter compared with the previous one, following a stagnation in 2020’s fourth quarter, according to final data from the country’s statistics agency Ine, released Thursday.

Preliminary data published on April 30 said that the economy contracted by 0.5 per cent on-quarter.

On an annual basis, Spain’s GDP fell by 4.2 per cent instead of the 4.3 per cent drop previously estimated.

Spain’s economy is expected to register a strong expansion in the second quarter amid the easing of Covid-19 restrictions, but the country isn’t likely to recover its pre-pandemic output levels until early 2023, economists say.

The Spain’s tourism sector is watching anxiously as coronavirus cases spike again across the country, leading to fears of mass summer cancellations among foreign visitors. The Financial Times on Wednesday ran an article headlined “Delta variant drives Spain’s Covid-19 rate to highest in mainland Europe,” and some regional governments have reintroduced restrictions while others are considering it.

The Spanish government is expecting around 17 million international arrivals this summer – just 45% of those who came in the summer of 2019 but three times more than in the summer of 2020. A record 83.5 million tourists visited Spain in 2019. By comparison, there were 3.2 million between January and May of this year, a drop of 26 million from the same period in 2019.

A steady decline in transmission and a good pace of vaccination had fueled hopes of a reasonably succesful summer season. But the current spread of the coronavirus among the younger, unvaccinated population is creating fears of new international travel restrictions that would lead to canceled bookings.

Spanish officials have noted that the spike in new cases is not leading to a significant rise in hospitalisations, and that Spain’s most vulnerable citizens are largely protected, with over 42 per cent of the population now fully vaccinated. The mortality rate is also among the lowest in the European Union. But the tourism industry still fears the effects of international media coverage on political decisions.

“It’s dramatic, it’s the worse thing that could happen to us. The image that’s being projected is of great concern. It seems only a matter of time before a return to restrictive measures,” said José Luis Zoreda, vice-president of Exceltur, an industry group representing 33 major travel companies.

It may already be happening. On Thursday morning, France’s secretary of state for European affairs, Clément Beaune, made the following recommendation to French nationals on the television network France 2: “To those of you who have not yet booked your vacations, avoid Spain and Portugal as destinations.”

The industry is now waiting to see whether the United Kingdom will maintain its plans to end coronavirus restrictions on July 19. On Thursday, the UK government was expected to provide new details about quarantine requirements for fully vaccinated travelers returning from certain countries. Mainland Spain is currently on the amber list, meaning that returning visitors must quarantine for 10 days, while the Balearic Islands are on the green list.

The Spanish tourism sector is also concerned about Germany, the other major source of visitors to the country. There are fears that Berlin will adopt a similar policy as it has with Portugal and introduce a quarantine for returning travelers.

If any of this happens, the travel industry will be left high and dry after 16 very slow months. “The delta variant represents a particular risk to economies that are more exposed to tourism,” said Axel Botte, a global strategist at Ostrum Asset Management.