Valencia faces economic challenges after the flood, but recovery is possible.

The recent flooding that struck the province of Valencia on October 29 has left a significant mark on the local economy. However, an analysis by BBVA Research suggests that the recovery of the Valencian Gross Domestic Product (GDP) could be possible in less than a year, provided that the promised aid to businesses arrives quickly and effectively. The current situation poses a challenge, but also an opportunity for the region's economy to recover and reorient itself towards a more resilient future. The impact of the Dana (a type of storm) has been particularly felt in an area of the province that represents 32% of the GDP and where 36% of Social Security affiliates are employed. This highlights the economic relevance of the affected area and underscores the urgency of support measures. According to BBVA, it is estimated that the loss of GDP in the last quarter of 2024 could reach up to 1.6 points in Valencia, with a more moderate impact on the overall Valencian Community, projected at a decline of 0.5 points. Despite these negative projections, BBVA analysts are optimistic. If state and regional aids are implemented promptly and effectively, economic growth in 2025 and 2026 is estimated to stabilize around 2.7%. This growth would be a welcome relief for an economy that has seen a deterioration in several economic indicators in recent months, including a decline in exports and a drop in overnight stays by foreign tourists. The report highlights that the damage inflicted by the Dana has not only affected local GDP but has also had repercussions on the fixed capital stock, with damages estimated to be equivalent to 1.1% of the national GDP. This context underscores the vulnerability of the Valencian economy, which represents 5% of the Spanish GDP and 53.6% of the GDP of the Valencian Community in 2023. In terms of employment, the situation appears to have shown signs of improvement. By the end of December, gross affiliation to Social Security in the province of Valencia had nearly recovered to pre-Dana levels. However, the hardest-hit areas still face uncertainties, with more than 10,000 workers estimated to be covered by a Temporary Employment Regulation File (ERTE), a figure that has significantly increased compared to the average in recent years. On the other hand, the Valencian government has anticipated damages exceeding 10 billion euros, which has led to the implementation of a series of aids amounting to 16.6 billion euros from the State and 1.324 billion euros from the Generalitat Valenciana. Nevertheless, the effectiveness of these aids is crucial. If 100% of the funds are executed, the positive impact on the regional economy could be significant, equivalent to 9.3% of the GDP of the Valencian Community. However, uncertainty persists. The evolution of the Valencian economy will largely depend on the efficiency in executing these aids and the capacity of the fiscal multiplier to generate a positive effect on economic activity. If implementation is slow or ineffective, the recovery time could extend beyond what is expected, leading the economy into a state of prolonged fragility. BBVA's analysis underscores the importance of a swift and forceful response to mitigate the impact of the Dana on the Valencian economy. The coming months will be crucial in determining whether optimistic projections materialize or if, on the contrary, the economy faces a longer period of instability. The province's ability to adapt and recover will depend not only on the available resources but also on political will and collaboration among institutions, businesses, and society as a whole. Thus, the province of Valencia finds itself at a crossroads, where the decisions made in the short term will have significant repercussions on the region's economic future. Recent history has shown that, despite challenges, resilience and recovery capacity are intrinsic characteristics of the Valencian economy, and with the right support, it is possible for the province to find its way back to growth and stability.