The economy of Castilla y León could grow by at least 5.9% in 2021 and 6.1% in 2022, which would allow it to recover the level of GDP prior to the pandemic by the end of 2022, according to BBVA Research.

This improvement will be supported by the advance of vaccination, a favorable international environment, the greater dynamism of consumption by Castilian and Leonese households, as well as the boost that European Next Generation EU (NGEU) funds will allow. If these forecasts are met, the regional economy would create, on average for the year, some 25,000 new jobs between 2020 and 2022, which would allow the unemployment rate to be reduced to an average of 11.4% during the following year. In any case, the evolution of the pandemic and the distribution of European funds could condition the speed of the recovery.

According to the latest report ‘Castilla y León Situation’, presented today by Miguel Cardoso, chief economist for Spain at BBVA Research, and Marta Alonso, director of the Northwest Territory of BBVA, the community’s GDP fell by 9.8 in 2020 %, which represents a lower impact of the crisis on the regional economy than that estimated for the Spanish economy as a whole (-10.8%).

The better relative performance of the economy of Castilla y León in 2020 is mainly explained by the lower correction of household spending, and the lower weight in its economy of the sectors of social consumption and foreign tourism, which contributed to a lower final impact on the demand for goods and services in the region. All this, together with the industrial, agricultural and export specialization of goods in Castilla y León would have allowed the regional labor market to be somewhat less affected than that of the whole of Spain. Although, according to the available data, at the end of 2020, membership in the Community had not recovered the pre-pandemic level .

Acceleration in 2022
At the beginning of 2021, activity in Castilla y León and in Spain would have been reduced due to the outbreaks of the pandemic, Brexit and the increase in oil prices. According to BBVA Research, the Castilian and Leonese community would have started the recovery in the second quarter of 2021. In the third quarter, high dynamism is observed and regional GDP growth could be higher than expected a few months ago, due to the recovery in consumption , after the state of alarm waned in May.

By sectors, the acceleration in spending on restaurants, leisure and accommodation stands out. By provinces, the lifting of the regional confinement further boosted spending in Ávila and Segovia, which could be favorably influencing the consumption of visitors from the Community of Madrid. All this allowed that the face-to-face card spending in the community was 30% higher in August than that observed in the same period of 2019.

Likewise, Castilian and Leonese exports of goods improved progressively in the first half of this year, although overall this progress was lower than that observed in Spain as a whole.

Available data show a generalized recovery in the second quarter and in July,
driven by external demand for automobiles
and capital goods, as well as sales to Europe.
For the coming quarters, BBVA Research foresees an acceleration of the recovery supported by progress in vaccination; the use of savings stored up by families; the recovery of activity in Europe; approval of the Recovery, Transformation and Resilience Plan; the arrival of NGEU funds, and the expansionary policies of the ECB. All this, together with a significant unused production capacity after the sharp drop in spending, will favor the advance of consumption, tourism and investment, which will boost the recovery.

In this context, according to the BBVA Research Department, in 2021 the economy of Castilla y León could grow by at least 5.9% in 2021 and 6.1% in 2022. This would allow the regional GDP, at the end of the next year, it will recover the level of 2019, with an evolution similar to the average for Spain. If the expected scenario is fulfilled, Castilla y León could create, on average for the year, some 25,000 jobs between 2020 and 2022. In addition, the community unemployment rate will drop six tenths to reach 11.4% on average annual 2022.

Uncertainty factors
The expected recovery scenario could be affected by various factors of high uncertainty. In the first place, the control of the pandemic could imply an upward bias in the forecasts, since it would allow to maintain a significant growth in private consumption. Therefore, it will be key to maintain rapid , effective and massive vaccination rates in Spain and Europe.

But there are also downside risks. First, the shortage of raw materials, intermediate products and computer chips is generating disruptions in the value chains that can affect production in some key sectors for the regional economy, such as the automobile. To this is added the necessary transformation that the sector will undergo, in line with the environmental sustainability objectives pursued by Spain.

On the other hand, the cost of energy has become a source of concern for families and businesses, particularly for the most vulnerable households and for the most electricity-intensive industry. The measures recently adopted by the Government will help to reduce the cost on economic activity. However, additional increases in the price of raw materials , an additional increase in the cost of transport due to the lack of containers, tensions in the gas market or greater pressure on inflation as a result of the increase in the price cannot be ruled out. demand.

Finally, the latest data published by the INE seem to confirm that the Spanish economy is recovering at a slower speed than previously believed. If this is confirmed, it could introduce additional bias on this scenario.

In addition, there is a risk of not addressing the reforms necessary to create the conditions for a vigorous recovery, facilitating the maximum use of NGEU funds, and consistent with environmental objectives. Collaboration between governments, with a relevant role for the autonomies, and the private sector, will be crucial to choose and execute the projects with the greatest impact on employment and productivity, not only in the short term but also in the long term. Likewise, the pension reform improves adequacy, although it does not address sustainability, so its effects will depend on how persisting imbalances and intergenerational equity are addressed.

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