When Will The Spanish Economy Return

4 February 2021

Money has never changed anyone, it just magnifies who they are. ~ Baylor Barbee

Overview of 2020 #

The Year 2020 began with sustained growth rates in both tourist 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. Stay with me as these numbers will begin to make sense when you look at the chart below.

The Economy (revenues generated by tourist 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%, mostly from public sector spending on ERTE and infrastructure initiatives.

The Balearics had the largest fluctuation of fiscal results compared with the economies of all the autonomous regions of Spain.

Economy Graph 2019-2020

Problems with an Economy Based on Tourism #

In a country that prides itself on its medical system hit hard by infectious disease, while allowing cruise ships and other tourists to arrive during the pandemic, the financial results for 2020 show a high-dependence on tourism for economic stability. Tourism accounts for 12% of the total Spanish economy. Small and mid-size businesses in this sector contribute 70% of the jobs. The widespread use of temporary employment in tourism accounted for most of the job losses.

With limited movements required to help slow the spread of COVID-19 in order to take the pressure off hospitals, the numbers show that Mallorca and the Balearics are too dependent on tourism. Many of us have known this for years because we see it in real time. The plastic waste and " fatbergs" that have blocked municipal sewer systems in Calvia and other locales, the abundance of jellyfish, and the traffic congestion have all been more noticeable in the past 20 years since tourism because the driver for the economy.

Investment in Public Utilities Makes A Difference #

Sustainability initiatives 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.

Endesa, the electricity supplier, recently halved its capacity for generation 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 to supply energy 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 that support a transition to a low carbon economy.

Alcudia Power Plant min

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 in Spain. 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 Recovery and Resiliency Facility is providing €300 million in public sector investment funds to the Balearics for green infrastructure and human capital. Several projects have been recognized as good practices by the Ministry of Finance, such as aid to companies to maintain workers, financial grants and loans to local businesses that install photovoltaic panels for home use-consumption, and the establishment of charging points for electric vehicles.

Also 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 transports
  • Electrification of the Enllaç- Sa Pobla and Enllaç-Manacor railway corridors
  • Project for the detection and control of the invasive Asian wasp in Mallorca. This project was awarded the second prize for the Best Project of the Feder in the 2019, the annual act of Regional Policy and Funds Europeans from Spain.
Sunset autumn train station Photo Adele Chretien

Adèle Chrétien

Pre-Pandemic Fiscal 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 tourism partner, Germany, which is expected to return to pre-pandemic numbers by 2022.

Only the UK is expected to perform 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 of second home owners and tourists, followed closely by the citizens of the UK. With COVID mutations and lack of coherence of BREXIT policies, the UK will only provide a moderate lift for Mallorca.

Guys hands holding money euros notes

Christian Dubovan

Sustainability on the Island #

You may now be asking, what does sustainability have to do with the economy? Everything. We covered the initiatives on the island in 2020, showcasing change makers who are making a real difference in the local economy. They help our communities stay healthier, greener and more resilient. For more on them and other projects, check out this article >> ULTIMATE GUIDE Sustainable Living

As the government - meaning: us since we pay vote for them and pay taxes to support government programs - makes investment in our economy, it's better to invest in our future. For a little background on how the central government impacts our local island life, Mallorca is subject to tourism quotas set by the central government. Spain’s government pushed the island to attract more tourists, which forced the building of infrastructure for an annual load of over 28 million people a year, on an island with less than 900,000 full-time inhabitants.

Servicing this number of tourists is a tremendous burden on the natural systems on the island and on government spending.

We are running out of time Climate

Infectious Disease #

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. Even thought the ban is currently lifted, do not purchase one now. Support local agriculture and buy from local farms. By shopping in our villages and communities, our money supports our neighbors and this strengthens the fabric of the island's living standards.

And a big one, stop using plastic bags and use your individual containers when buying food at the village markets. Plastic waste is a huge burden on our beloved sea but before it makes it to the sea, in landfills where plastic attracts mosquitos that carry infectious diseases like leishmaniasis. Collectively, we can make a difference and support our economy.

If we continue, the quotation on our collective tombstone will be: This species did not understand exponential growth. - Daniel Christian Wahl

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. According to the IMF, the pandemic is widening inequalities in the labor market. The job market disruptions among on young, low-skilled, and temporary workers have been especially harsh. If a legal resident, young workers will qualify for vocational training programs.

Women were especially hard hit in the pandemic with over 29% working in sectors hit by the economic fallout. This further exacerbates the gender gap because of childcare protections for workers than put a financial stress on small and mid-size companies. Women will be in need of community supports, especially if they have small children. People are generously donating food, clothing and other essentials to help these families through these most difficult times. More will need to be done. One group on Mallorca helping families and children is Fundacion RANA. Please see how you can be involved.

Others of us who are more "middle-aged," love the café lifestyle. Our community activities will continue to be reduced significantly until COVID is better managed, not by the government but by individuals taking responsibility for the welfare of us all. And, if you are on a pension or on a self-imposed budget, you will need to have a solid plan for living on Mallorca.

With employment restrictions for non-EU workers, a category which the UK citizens now fall into, people need another financial model to support their lifestyles here on the island. The new residency requirements are more stringent and require additional income compared to other parts of Spain, due to a higher cost of living here. Mallorca is no longer mañanaland.

Women Entrepreneur Working Smiling

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 order.

Montuiri town blossoming trees

Back to the Future: A 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:

Beautiful happy elderly couple rest beach sunset

A Thought for You #

Affordable Mallorca provides information for you to enjoy the authentic Mallorca. We show you hidden gems and insights that support a healthy lifestyle. We value your ideas on how you are redefining luxury while living on the beautiful island of Mallorca. Please share your ideas with me at [email protected].

Sources

4 February, 2021

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