Spain cuts 2021 growth forecast to 6.5% after first-quarter contraction

The Spanish government cut its forecast for economic growth this year to 6.5% on Friday, well under its initially predicted range of 7.2%-9.8%, after fresh COVID-19 restrictions caused a slight contraction in the first quarter and as it expected delays in the arrival of EU rescue funds. The economy should expand by 7% in 2022, with output recovering to pre-pandemic levels by the end of that year, Economy Minister Nadia Calvino told a news conference.

The Spanish government cut its forecast for economic growth this year to 6.5% on Friday, well under its initially predicted range of 7.2%-9.8%, after fresh COVID-19 restrictions caused a slight contraction in the first quarter and as it expected delays in the arrival of EU rescue funds.

The economy should expand by 7% in 2022, with output recovering to pre-pandemic levels by the end of that year, Economy Minister Nadia Calvino told a news conference. A third wave of the coronavirus hit the country in the first two months of the year, and a massive snowstorm also disrupted activity in much of Spain in January.

"The recovery is delayed by one quarter," Calvino said, adding however that the government expected a strong increase in the second half of 2021. The disbursement of the European Union recovery funds will further boost the economy, but the impact will mainly be felt in 2022.

Calvino had estimated last year that the funds would lift growth to 9.8% in 2021. The 6.5% growth forecast for 2021 includes the effects of the funds on growth, she said. The government expects growth to speed up in 2022 to 7%, before slowing down to 3.5% in 2023 and 2.1% in 2024.

The Bank of Spain had already lowered its 2021 growth forecast for similar reasons to 6%, while the International Monetary Fund expects a 6.4% expansion after output slumped a record 10.8% in 2020.