Spain’s economy crashes 18.5% in Europe’s worst contraction yet

Bloomberg reports that Spain’s economy suffered a bigger blow than expected in the second quarter, burdening it with the prospect of a long recovery that’s become even tougher because of additional headwinds facing the tourism industry.

The record 18.5% drop in output -- led by plunges in consumer spending and investment -- is the deepest reported so far in Europe, where restrictions to control the coronavirus battered businesses and households. Economists had anticipated a 16.6% contraction.

The virus fallout has been widespread across the euro area, where figures on Friday are expected to show a double-digit slump. France said earlier its economy shrank almost 14%, following a record 10% decline in Germany.

But Spain’s figures put the spotlight on southern European countries that suffered the most from the pandemic after entering the crisis with already-strained public finances. Europe’s fourth-largest economy had one of the continent’s earliest and deadliest outbreaks of the coronavirus, along with Italy, and the government responded with a strict lockdown.

The Spanish economy is heavily reliant on tourism, a sector that’s been slammed by the pandemic. A bad summer season took a turn for the worse when the U.K. announced last weekend that holidaymakers returning from Spain would have to quarantine because of an uptick in coronavirus cases in regions such as Catalonia.

Nearly every industry contracted in the second quarter, with the exception of government spending, agriculture and financial and insurance activities, which grew slightly. The hardest-hit sectors were retail, transport, restaurants and bars, which together plunged 40.4%.

The Spanish economy has been particularly affected by the crisis because of the relatively small size of its companies, which leaves them more vulnerable and less capable of effectively responding to the shock. Business associations expect tens of thousands of small and medium-sized companies to go bankrupt before the end of the year.