Second shock to Spain’s economy could send ripples across Europe hotspots

Britons are vital for the tourism-reliant Spanish economy as they swap drizzly summers for sizzling beaches, visiting and spending far more than other country’s visitors. Some 22pc of all foreign visitors arriving in Spain came from the UK in 2019, well above second-placed Germany and France at 13pc each, according to Spain’s official statistics bureau. 

Britons also spent more than any other country, accounting for a fifth of expenditure, or close to €18bn, compared to 13pc from German visitors and 8pc from French tourists. UK visitors were spending more than €2m every hour in of Spain’s beach resorts, tapas restaurants and plaza cafes.

Talavera says there were hopes of a “relatively quick” rebound but warns tourism “is a huge sector that is a critical part of the Spanish economy”.

Tourism accounts for around 12pc of Spain’s GDP and around 13pc of its employment but it has an outsized impact for some regions – around a third of output in the Canary and Balearic islands. Of the major European economies, only Greece and Portugal are more reliant on their tourism industries as a share of GDP, Jefferies data suggests. 

Tourism is the third-largest industry after manufacturing and financial services with Catalonia, the Canary Islands, the Balearic Islands and Andalucia the hardest hit hotspots from foreign visitors drying up. With cases far lower on the islands compared to the Spanish mainland, reports suggest a more regional approach to the new restrictions could be taken by the Government to help save the industry’s summer.

Spain’s economy was already suffering a deep downturn than the rest of Europe before the latest setback, according to forecasters. 

Before Covid-19, Spain’s economy was slowing like the rest of the world but was an outperformer compared to its sluggish eurozone peers.  However, the pandemic has struck Spain harder than most both in infections and economic activity.

Friday’s GDP figures are set to reveal that output in Spain plunged 16pc in the second quarter with many forecasters expecting the country to suffer the deepest contraction in Europe this year.

“We now have Spain being worst hit because it seems to be coming out of the worst part of the crisis a bit more slowly than Italy,” says Andrew Kenningham, chief Europe economist at Capital Economics. “It’s very tourist dependent and the labour market has a lot of people on temporary contracts and we suspect they are more likely to lose their jobs.”

He says an “extremely severe lockdown” and Madrid’s lack of fiscal firepower also mean Spain’s economy is struggling.

The Government’s decision will not only hold back the recovery in Spain but also heap pressure on the travel and tourism industry in the UK and elsewhere. While some holiday-goers will spend their money in the UK or in other countries rather than Spain, it could rock brittle confidence in the sector.

Adam Marshall, director general of the British Chambers of Commerce, says sudden changes to quarantine rules will be “another hammer blow for the fragile travel and tourism industries, both here in the UK and overseas”.

He adds: “Businesses will be asking why Spain was on the safe list on Friday, only to be taken off it on Saturday.”

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