Spanish economy: Outlook, risks and challenges

Pablo Hernández de Cos, Governor of the Bank of Spain, analyzed, in his appearance before the Commission for Economic Affairs and Digital Transformation of the Parliament, the outlook of the Spanish economy and the impact of the coronavirus crisis. The Governor explains the medium term risks and challenges to recover economic growth and the most relevant measures taken to date to tackle the crisis and to guarantee financial stability, as well as the active role of banks to overcome this crisis.

Please find below some highlights from his speech:

• According to the Bank of Spain, it will be necessary a strategy to strengthen public accounts in the medium term, specifically “through a review of public spending and of the tax structure and its capacity, to reinforce our public finances, as well as a program of structural reforms that improve the potential economic growth and, therefore, expand the tax bases necessary to fund the desired level of public spending.” For this purpose, it is required a political agreement for several terms.
  
  
• In the financial sector, the Covid-19 crisis would have intensified credit, market and operational risks. In this regard, the Governor highlighted the adoption of different economic policy measures (mortgage moratoria and state guarantee loans) and other financial regulations that will help to mitigate the evolution of non-performing loans and the risks to financial stability: "the authorities have eased prudential and accounting regulations, allowing the release of around €90 billion that could cover losses equivalent to almost twice the current volume of doubtful debts in the system, that is, approximately 8.2% of total credit to the resident private sector”.