Spain: No Return of Economy Until 2023

Overview of 2020

The Year 2020 began with sustained growth rates in both arrivals and revenues. But, in mid-March, the declaration of a state of alarm caused a 63.3% drop in arrivals. Over the next two months, with much of the world confined, movement was close to 0%.

In June through mid-August, there was some recovery but the extension of the second wave of the pandemic from September produced further declines in tourism revenues.

The Economy (revenue) plummeted a little less 90% in 2020, the largest drop of any autonomous region in Spain. However, third quarter had a growth of 16.4% and fourth quarter results show the growth at .4%. All of these numbers are largest fluctuations in the economy of Spain.

Problems with an Economy Based on Tourism #

In a country hit hard by infections while allowing cruise ships and other tourists to arrive during the pandemic, the numbers overwhelming show a high-dependence on tourism for economic stability.

COVID-19 restrictions, with limited movements required to help slow the spread of the virus and take the pressure of hospitalizations, show that Mallorca and the Balearics are too dependent on tourism. People move to Mallorca for sun, sand and sangria, even if they come to take a job. With employment restrictions for non-EU workers, a category which the UK citizens now fall into, people need another financial model to support life on the island.

The new residency requirements are more stringent and require additional income due to a higher cost of living here. Mallorca is no longer mañanaland.

Investment in Public Utilities Makes A Difference #

Sustainability initiates create a better environment for us all and meet the Paris Climate Agreement mandates to reduce fossil fuel use. One goal is to close the gas and coal-fired electricity generation plant in Central Alcudia, near S’Albufera. Weak gas and LNG markets push coal out of the generation mix in Spain.

Endesa recently halved its capacity at the Alcudia plant which left over 100 people unemployed. The company plans to shut down the entire facility by 2030. However, since energy generation is needed on the island and the infrastructure is in place, Endesa proposes an investment of €52 million in a new ‘green’ hydrogen energy production plant in Alcudia. Endesa is committed to sustainability initiatives to transition to a low carbon economy.

The company has been working on these initiatives for years, with the Balearic Government, to replace the thermal generation plant with energy-generation based on a renewable model. According to Endesa’s announcement at the end of November 2020, this power initiative represents more than half of the 3,900MW generation. This build out will support the first phase (2020-2024) of the Hydrogen Roadmap, launched by the central government of Spain, pre-COVID.

Endesa has been working on these initiatives for years, with the Balearic Government, to replace the thermal generation plant with energy-generation based on a renewable model. According to Endesa’s announcement at the end of November 2020, this power initiative represents more than half of the 3,900MW generation. This build out will support the first phase (2020-2024) of the Hydrogen Roadmap, launched by the central government of Spain, pre-COVID.

Other Public Sector Initiatives #

The EU is providing €300 million in public sector investment funds to the Balearics. Several projects have been recognized as good practices by the Ministry of Finance, such as aid to companies to maintain workers and local businesses that that install photovoltaic panels for home use-consumption as well as establishing charging points for electric vehicles.

Also the on the list for investment:

• Improvement of the Ferreries and Binissalem treatment plants
• Construction of the new IES in Santa María
• Installation of digital classroom equipment in public teaching centers
• Integration of information systems and equipment on board in health transport
• Electrification of the Enllaç- Sa Pobla and Enllaç-Manacor railway corridors
• Project for the detection and control of the invasive Asian wasp in Mallorca, which was awarded the second prize for the best project of the Feder in the 2019 annual act of Regional Policy and Funds Europeans from Spain.
  

Pre-Pandemic Levels Reached in 2023 #

The predictions by OECD (Organization for Economic Cooperation and Development) stated in their December 2020 Report that Spain is not expected to return to pre-pandemic economic levels until 2023, if COVID is contained. With a lack of adherence to scientists’ recommendations of mask wearing, social distancing and washing hands thoroughly and often, combined with a slow vaccination plan, this outlook may be optimistic.

Based on the G20, of which Spain is not formally a member, Spain is predicted to be harder hit than its neighbors and tourism partner, Germany. Germany is expected to return to pre-pandemic numbers by 2022.

Only the UK is expected to preform worse than Spain and not return to pre-pandemic numbers until late 2023 or 2024. In previous economic crises, Germany’s recovery has provided beneficial effects for Mallorca as the Germans are the single largest market, followed closely by the UK. With COVID mutations and adoption of BREXIT policies, the UK will only provide a moderate lift for Mallorca.

Sustainability on the Island #

Many of us remember when the weather on Mallorca was predictably 300+ days of sun and warmth with a rainy season that was manageable. Now, residents and tourists alike are struggling to make social plans, modify housing and sort out costs of living on an island with weather uncertainties.

You may now be asking, what does this have to do with the economy? Everything. Mallorca is subject to quotas set by the central government. Spain’s government pushed the island to host more tourists which forced the building of infrastructure for an annual load of over 25 million people a year, on an island with less than 900,000 full-time inhabitants.

As we wrote in our Ultimate Guide: Sustainable Living: “A warmer planet incubates infectious diseases. With our interconnectedness as species, through migrations – documented and undocumented, we currently have a global pandemic of a virulent coronavirus, COVID-19. People are now speaking “before Coronavirus” and “after Coronavirus” because we all sense the marker than times are now different. We are now compelled to make more rational decisions based on our common welfare. Long gone are the days of lone wolfs, mavericks and independent thinkers acting selfishly”

We can make decisions on how we live on Mallorca to support our budgets and our community. Using solar as much as possible is a viable option. Caixa Bank is making micro-loans for home solar plants. Pre-COVID, the Balearic Government had banned diesel cars by 2025. Do not purchase one now, even though they are legal. Support local agriculture and buy from local farms.

And a big one, stop using plastic bags and use your individual containers when buying food at the village markets. Surprisingly, plastic waste attracts mosquitos which carry infectious disease. Collectively, we can make a difference and support our economy.

What does this mean for you? #

All this depends on your individual circumstances, of course. If you are looking to move to Mallorca and enjoy the Mediterranean life, you need to plan for prolonged times of economic inactivity. Many moved here with the intention of working in the tourism sector. Those dreams were dashed in 2020 for millions of people.

Others of us love the café lifestyle and that will continue to be reduced significantly until COVID is better managed, not by government but by individuals taking responsibility for the welfare of us all.

If you are on a pension or you budget your funds, you will need to have a solid plan for living on Mallorca.

Housing #

The most expensive part of living on Mallorca is housing. Whether you own or rent, the monthly costs need to be factored into your personal circumstances. Fundamental changes were happening pre-COVID and some of those changes will be slower to manifest. However, the reality is that housing on Mallorca is too expensive for many people.

According to local appraisers, housing prices have fallen 8.2% since March 2020. For many of us, this is an arbitrary number. The reality is that Mallorca is a destination market. With fewer jobs, homes will be purchased mostly by EU citizens who can more freely travel through the Schengen Area.

BREXIT and the decline in the UK Pound are further stressing the 15,000 Brits who live on the island. Some are simply tightening budgets and arranging for private insurance coverage while others need to leave the island for the surety of health insurance through the NHS.

Legal residency for EU Citizens for EU citizens is a big decision and factors into housing needs and, ultimately, the values in the housing market. Non-EU Part-time residents are understanding the latest requirements are struggling to justify high housing costs. To see the latest regulations, click >> Spanish Residency for Non-EU Citizens. The hard reality is that Mallorca has more homes than residents. It's a simple demand and supply equation. The challenge is to find a good lawyer who can help you sort out the title to make sure the property is legal. For a LEGAL property, you should be willing to pay premium prices. But make sure everything is in orderBy.

Back to the Future: List of Options #

Years ago, life on Mallorca was slower and, for many of us, easier. Sure, July and August were filled with tourists on the beaches. But, most of the food grown on the island fed the local population. We did not import as much clothing, furniture or building materials. We re-used what we had and helped provide for our neighbors. While the economic pressures are real for many of us, leaving us with a feeling of powerlessness to change our circumstances, you can make a solid plan of action that can support your monthly budget requirements:

• Shopping at village markets to minimize waste and support local agriculture
• Buying second-hand clothes and other items
• Use public transportation
• Invest in water filtration for your home (stop buying plastic bottles of water)
• Reuse and recycle
• Volunteer for local charities
• Buy Local: Here is Our Local Directory

A Thought for You #

Affordable Mallorca provides information for you to live a life of luxury while living on a budget. We value your ideas on how to redefine luxury while living on the beautiful island of Mallorca. Please share your ideas with me at [email protected].

Sources

• El Pais
• Economia de Mallorca
• S & P Global