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THE EURO ZONE

It's all relative

The Bank of Spain has once again tweaked its prediction of the impact that Covid-19 will have on the Spanish economy, setting the projected range of GDP contraction for this year between 9% and 11.6% (a reduction from its previous projection of between 6.6% and 13.6%). The institution's analysts will continue modelling all scenarios - including early and gradual recoveries and a return of the virus during the autumn flu season - and adjusting their likely consequences as they go along, which is really the only way to proceed given a backdrop of such profound uncertainty.

Yet despite the frequency with which they're altered, such projections highlight the importance of perspective when evaluating things like public debt, GDP growth and the unemployment rate. In its worst case scenario, the Bank of Spain envisages public debt rising to 119% of GDP this year, possibly reducing (in its most optimistic projection) to 112% next year. The Bank's gloomiest forecast for unemployment sees it hitting a critical 23.6% by the end of this year, or at least (in the "best case" scenario) 18.1%.

Spain's GDP expansion has been impressive over the last five years, consistently and comfortably outpacing the eurozone average. But before the Covid crisis broke, two other key economic indicators were already in the red: public debt hovered at just under 100% of GDP and at 14%, unemployment remained the second highest in the EU after Greece. These two statistics were cause for concern long before C19 came along: but now, seen from our post-Covid perspective and compared with the Bank's most recent forecast, they start to look manageable, representative of an economic reality that was stable, if not perfect.

Perspective is also crucial when we speak of economic recovery. Do we mean "recovery" to immediately pre-Covid levels, or "recovery" in the sense in which it was meant before the virus broke - i.e. the continuation of Spain's gradual, but incomplete, exit from the last recession? Arguably, getting the public debt back to "just" 100% of GDP or ensuring that "only" 14% of the labour force are out of work wouldn't constitute recovery in the deeper, pre-Covid sense of the term. Instead, a really bad situation would merely have been rendered less bad.

Of course, if Pedro Sánchez's Socialist government can ensure that, despite the pandemic, public debt and unemployment don't deviate too much from their current levels (to use a somewhat imprecise benchmark), that would be an achievement in itself; but it would, at best, leave Spain with the same economic problems it faced before the virus arrived. The pre-Covid state of affairs, it must be remembered, was in need of substantial improvement itself, meaning the government's true task is not to get back to normal, but to get back to better than normal.