- On 10 June the OECD published forecasts with two scenarios, depending on whether a second wave of the epidemic came.
- In both, Spain was among the worst-hit economies because of the weight of tourism and services.
- The same goes for an estate: the more concentrated in one sector, the more it is affected by whatever happens to that sector.
On 10 June 2020 the OECD published forecasts with two scenarios, depending on whether a second wave of the epidemic came. In both, Spain was among the worst-hit economies, because of the weight of tourism and services in it. The news confirmed that the impact of the crisis would not be the same for every country, and that productive structure made the difference. An economy with a large share of in-person activities and mobility is more vulnerable when both are restricted.
For those who run companies or manage assets in Spain, the message could be read in two ways. On one hand, a harsh diagnosis of the country’s situation as a whole; on the other, an invitation to look more closely at how much each business and each estate depends on the sector that suffered most. Knowing one’s own exposure is the first step towards managing it. And also the chance to consider which changes make sense before the situation tightens.
Two scenarios
The OECD, the organisation that brings together advanced economies, published a forecast with two possible paths: one in which there was no second wave of the epidemic and one in which there was. Presenting two scenarios is an honest way of acknowledging that the future depends on factors nobody controls.
That way of presenting forecasts is also a useful lesson for any company. Instead of betting on one single figure, ranges are set out and it is explained what they depend on. Whoever plans this way knows which signals to watch and what decisions they would take if the situation were better or worse than expected, which reduces the risk of reacting late or in a disorderly way. It also makes clear that a forecast is not a commitment but a way of ordering hypotheses.
Why Spain suffered more
The weight of tourism and services explains that position: these are activities that depend on direct contact and mobility, precisely what the epidemic restricted most. The structure of an economy determines how each crisis affects it.
Tourism and services do not only generate direct income: they sustain a long chain of activities, such as transport, retail, hospitality, leisure and a good part of the employment of many cities. When mobility is restricted, that whole chain suffers at once, and the companies within it have few ways of compensating from inside. That interdependence explains the severity of the blow. For a company in those sectors, the challenge was to hold out until mobility returned; for the rest, to understand how the blow travelled through customers and suppliers.
The lesson for an estate
The same goes for a family estate: the more concentrated in one sector, the more it is affected by whatever happens to that sector. A family whose wealth is all in one business, in properties of the same type or in shares in a single sector feels it more strongly. Spreading risk across activities that do not move in the same way is the basis of prudence.
A useful exercise is to draw a map of the estate: how much is in the business, how much in property, how much in financial products and how much in cash, and on which sector, country or activity each part depends. With that map, the adviser can help detect unwanted concentrations and propose alternatives gradually, without hasty decisions and respecting each family’s goals and time horizon. Diversifying does not mean giving up what one knows well, but preventing everything from depending on one single outcome.
Concentration is comfortable when things go well; diversification is what protects when they do not.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
