Spain Sector report

February 2021

Sectors @ a glance

Industry performance outlook

Agriculture

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Automotive/ Transport

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Chemicals/Pharma

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Construction/ Const. Materials

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Consumer Durables

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Electronics/ICT

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Financial Services

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Food

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Machines/ Engineering

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Metals

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Paper

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Services

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Steel

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Textiles

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Agriculture

The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.

Remains Fair In H1 of 2020, the sector was initially affected by the consequences of the lockdown (e.g. transport issues and lack of foreign seasonal workers) and was impacted by a high rate of coronavirus infections among foreign seasonal workers active in the fruit and vegetables subsector. While agriculture is not one of the sectors most affected by the pandemic, the industry continues to face the uncertainties already existing before the crisis started, such as price pressure from big retailers, the effects of Brexit, and ongoing US tariffs on EU agricultural products. Agriculture value added is forecast to contract by about 2% in 2021 after an estimated 3% increase in 2020.

Automotive/Transport

Remains Bleak When it comes to transport, the sector continues to be severely affected by the pandemic and subsequent containment measures adopted, especially in the passenger transportation segment. Value added is estimated to have decreased 22% in 2020. A rebound in 2021 remains subject to downside risk due to the ongoing pandemic.

In the automotive sector, vehicle production decreased 19% in 2020, while sales deteriorated 35% in the January-November 2020 period. Most companies temporarily shut down their activities in early 2020, which has caused a major decrease in margins and results for manufacturers, suppliers and car dealers in H1 of 2020. While both production and sales started to increase again in H2 of 2020, a strong rebound has not yet materialized.

Payment delays in the industry increased in H1 of 2020, but the situation improved notably in H2. However, business insolvencies have increased in the last couple of months. So far, the insolvency outlook for H1 of 2021 is expected to remain stable, with no major increases expected for the time being. The outlook for a performance rebound in H2 of 2020 is still good.

Chemicals/ Pharmaceuticals

Remains Fair In 2020 many chemical businesses suffered due to deteriorated demand from key buyer sectors domestically and globally. Chemicals value added is estimated to have contracted 6.5% in 2020, with a 4.5% rebound forecast for 2021. The cosmetics subsector is still in trouble, severely affected by the comprehensive closure of retailers in H1 of 2020, lower household consumption, and the current lockdown measures implemented as a consequence of the second wave of the pandemic.

Pharmaceuticals continued to benefit from rising healthcare expenses, with value added forecast to grow 2% in 2021 after a 4% increase in 2020.

Construction/Construction Materials

Remains Bleak Despite a rebound since the credit crisis, the industry was still struggling before the coronavirus outbreak, with increased credit risk mainly to smaller players. Due to a sharp pandemic-induced recession, businesses are affected by postponement of projects and reduced order volumes, especially in the public works segment. While tenders were reinitiated in May 2020, investments are expected to rebound in the medium- and long-term when funds from the European Recovery Plan provide a stimulus for the industry in 2021 and beyond. In the residential construction segment, demand is affected by rising unemployment, and developers could face a potential slowdown in sales. That said, the housing remodelling market has improved.

Construction value added is estimated to have shrunk by 14% in 2020, while construction materials value added contracted by 8%. Payment delays and insolvencies have decreased in H2 of 2020, but are expected to increase again in the course of 2021, subject to an expiry of government aid.

Consumer Durables

Remains Bleak Sales of consumer durables have deteriorated due to the coronavirus impact, with many businesses temporarily closed due to the lockdowns. Private consumption in Spain decreased by more than 13% in 2020. While there was a modest rebound in H2 of 2020, the ongoing lockdown imposed since the end of 2020 has further deteriorated the financial strength of many businesses. Payment delays and insolvencies are expected to increase in coming months. After lockdowns are potentially lifted in the coming months, low consumer sentiment and sharply increased unemployment could hamper a rebound in the short-term. Retail value added is forecast to rebound only 8.6% in 2021 after a 26% contraction in 2020.

Electronics/ICT

Remains Poor In 2020 electronics/ICT sales have deteriorated due to the closure of businesses during the lockdowns. While increasing e-commerce and sales of equipment for telecommunication have partly compensated for this decline, ICT value added is nonetheless estimated to have declined 8% in 2020. In 2021 a 2% rebound is forecast, but low consumer sentiment and rising unemployment could hamper a strong rebound in the short-term. That said, payment delays and insolvencies are not expected to increase significantly in coming months.

Financial Services

Remains Poor The sector has been impacted by the general economic downturn, with increased financial troubles for businesses and consumers alike. This could lead to increased non-performing loans, though these would be partially mitigated by guarantees provided by the Spanish government to banks. Moreover, the government has approved to extend the maturity of such loans up to eight years, also extending the grace period to another 12 months.

The restructuring process that started several years ago continues, and the sector remains immersed in a process of readjustment and mergers in order to improve its efficiency and adapt to the digital transformation. The latter even accelerated in recent months as a result of the pandemic. This process is impacting the number and size of financial entities, the amount of employees and offices, and customer service channels.

Food

Remains Fair In general, profit margins are tight in the industry, as price pressure from large distributors forces food producers and processors to adjust. Many food businesses show high short-term gearing. Another economic downturn remains a downside risk that could lead to a deterioration of businesses´ credit risk, especially when it comes to export-dependent food companies. Moreover, uncertainty about the United States trade tariffs policy still remains.

Due to the lockdown in H1 of 2020 and the poor evolution of tourism (mainly because of new outbreaks of coronavirus), food suppliers to hotels and restaurants (especially beverage companies) have suffered from deteriorating sales. Value added is estimated to have contracted by 3.5% in 2020. In 2021 value added is forecast to grow by 5%. After increasing in Q2 of 2020, payment delays and insolvencies have not risen further in H2 of 2020, and they are not expected to increase sharply for the time being.

Machines/Engineering

Remains Poor Orders on hand and production sharply decreased in H1 of 2020, with supply chain disruptions in early last year having a negative impact. Engineering value added is estimated to have contracted 12.5% in 2020. After increasing in Q2 of 2020, payment delays and insolvencies have decreased in H2 and are expected to remain stable in H1 of 2021, as businesses are supported by the maturity extension of loans guaranteed by the government and by extended deadlines for furlough measures.

Metals

Remains Bleak Last year, metal producers and traders suffered due to deteriorating demand from key buyer sectors (automotive, construction and machines). The sector is characterized by high pressure on businesses´ margins, with many companies already showing low profitability even before the coronavirus outbreak. The repercussions of the pandemic have led to a further deterioration of businesses´ financial strength. Metal value added is estimated to have contracted almost 8% in 2020. That said, both payment behaviour and the insolvency situation improved again in H2 of 2020 after a deterioration in H1, and this improving trend should continue in the first months of 2021.

Paper

Remains Poor Paper producers and printing are structurally impacted by the ongoing digitisation process. Supply chain disruptions due to lockdown measures had a negative effect in H1 of 2020. Cardboard packaging performed better than other segments, due to stable demand from the food industry and increased e-commerce during the lockdown period. Paper industry value added is forecast to rebound by just 0.5% in 2021 after an estimated 4% decline in 2020. Both payment behaviour and the insolvency situation improved again in H2 of 2020 after a deterioration in Q2, and this improving trend should continue in the first months of 2021.

Services

Remains Bleak Due to the comprehensive lockdown measures many segments suffered heavily in 2020, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. The hope for a strong rebound in the 2020 summer holiday season was dashed by the resurgence of coronavirus infections in Spain, which led to a sharp decrease in tourism and new lockdown measures imposed in Q4. Arrivals of foreign tourists decreased by 77%, to 18.9 million in 2020.

Services value added is forecast to rebound only 1% in 2021 after an estimated contraction of more than 12% in 2020. The hotel and catering segment is estimated to have declined 26% last year. Both payment delays and insolvencies sharply increased in H1 of 2020, and although in H2 there has been some improvement, payment default and insolvency ratios remain higher than in other sectors. The credit risk development in 2021 will depend on the further evolution of the pandemic and the roll-out of vaccines.

Steel

Remains Bleak Last year, steel producers and traders suffered due to deteriorating demand from key buyer sectors (automotive, construction and machines). The sector is characterized by high pressure on businesses´ margins, with many companies already showing low profitability even before the coronavirus outbreak. The repercussions of the pandemic have led to a further deterioration of businesses´ financial strength. Steel value added is forecast to rebound by just 8.5% in 2021 after an estimated 19% contraction in 2020. Both payment behaviour and the insolvency situation improved again in H2 of 2020 after a deterioration in H1, and this improving trend should continue in the first months of 2021.

Textiles

Remains Bleak Producers, wholesalers and retailers already suffered before the coronavirus outbreak from fierce competition and thin margins, having been additionally affected by deteriorating sales domestically and internationally last year. Textiles value added is estimated to have contracted by 7% in 2020. Small retailers are particularly affected by the negative effects of the lockdowns and subdued consumer sentiment. Although payment delays have decreased in Q4 of 2020, they have significantly increased year-on-year in 2020. The number of insolvencies is high, and expected to increase further in coming months.

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