01. 09. 2020 the impact of the covid - 19 crisis on financial stability closing address to the seminar “ the financial system in the covid - 19 crisis. challenges and commitments ”, universidad internacional menendez pelayo, organised by the spanish financial press association pablo hernandez de cos governor good afternoon ladies and gentlemen. it is an honour and a pleasure to participate once again in this summer course organised by the spanish financial press association. it is clear that the scope of the pandemic and its impact on the world economy are very extensive. following a 5. 2 % decrease in q1, with respect to the previous quarter, spanish gdp fell by 18. 5 % in q2, when the restrictions linked to the state of alert were at their height. these declines represent the greatest contraction in economic activity in our recent history. an improving path has been seen during q2 and q3. however, this recovery is incomplete, and uneven across sectors and agents. it is also subject to a high level of uncertainty owing to the doubts as to the course of the pandemic itself, as shown by the fresh outbreaks. it therefore seems clear that some of the pandemic's effects will be long - lasting. the banco de espana publishes its regular projection exercises, the next update of which is due to be released in the middle of this month, drawing on the definition of different scenarios. 1 these scenarios are based on different assumptions about, among other factors, the course of the pandemic, which continues to be subject to a very high level of uncertainty. in any event, the contraction in spanish gdp for this year as a whole will be most substantial and unprecedented in recent history. the recovery initiated in recent months should lead to relatively high growth in activity, after the hibernation brought about see macroeconomic projections for the spanish economy ( 2020 - 2022 ) : the banco de espana ’ s contribution to the eurosystem ’ s june 2020 joint forecasting exercise. by the lockdown ; however some quarters of robust growth are still needed to regain the pre - pandemic level of gdp. it is clear that the sharp macroeconomic downturn triggered by the pandemic has substantially increased the risks to global financial stability. the forceful economic policy response — from monetary, fiscal and supervisory authorities — and the effect of the farreaching international financial reform implemented in the last decade are helping to mitigate and manage these risks. indeed, so far the financial

the oil market, with adverse effects on world growth. in the current setting these risks are relevant to the spanish economy, given that it still has high levels of public and external debt, which make it particularly vulnerable to negative developments on the international capital markets. at the same time, further increases in oil prices might particularly affect our economy in view of its high foreign energy dependence. elsewhere, the political situation in catalonia does not appear to have stabilised, thereby posing a further factor of uncertainty, with potentially adverse consequences for the spanish economy as a whole. in the medium term, the expansion of our economy should cease to rest on the expansionary impulses of demand - side policies and come to depend on more durable factors. the estimates available on potential growth are relatively modest, meaning it is crucial to attempt to address some of the problems restricting it. these include most notably high structural unemployment, population ageing, a poor productivity trend and the technological capital deficit. budgetary policy in 2018 i shall now discuss the main items of the draft state budget for 2018 approved by the government on 27 march, and complemented by the stability programme update for the period 2018 - 2021, submitted to the european authorities on 30 april. this second document already includes some of the measures added to the draft budget in its passage through parliament. it is particularly useful in that it offers an overview of overall spanish general ( central, regional and local, including the social security system ) government budgetary policy, providing a broader time perspective of four years. in a country as decentralised as spain, it is impossible to properly assess public spending and revenue policies without this overview. at the same time, an effective fiscal policy, particularly when the starting point is a budgetary imbalance like ours, should be part of a consistent multi - year plan with specific measures. the budget and the stability programme include macroeconomic projections that point to increases in real gdp in spain of 2. 7 % in 2018, and slightly lower levels in the following 5 / 9 years : 2. 4 % in 2019, and 2. 3 % both in 2020 and in 2021. nominal gdp is expected to increase by around 4. 3 % over the entire forecasting horizon. the growth forecast and its composition are broadly consistent with the baseline scenario of the banco de espana ’ s macroeconomic projections i outlined earlier. the stability programme envisages an overall general government deficit of 2. 2 % in 2018, in line with the requirements of the stability and growth pact