The Recession In Spain: What Direction Is Spain Going In?
January 25th, 2010 - Chris MarshallI wrote last October of 5 Reasons To Worry About The Spanish Economy, and in early January that 2010 is time to be positive in Spain especially if you were a buyer in the property market (a view backed up in Spain: A Good Real Estate Investment In 2010), but which way is the Spanish Economy heading nearly one month into the new year?
Recent reports show the Eurozone recovering as a whole at a pretty steady rate when you look at manufacturing output with the index rising from 51.2 in November to 51.6 in December, while Spain is heading in the opposite direction still with manufacturing output continuing to fall, and larger job losses being reported in Spain then elsewhere in the Eurozone.
By way of evidence the index for Spain was 45.3 in November and 45.2 in December, which made it the third month in a row that Spain came bottom of the 26 country Eurozone Purchasing Managers Index league.
This is the main reason that firms continue to offer huge discounts to try and shift some stock and get some cash flowing in, but this just means reduced margins, which are only sustainable for a certain amount of time.
Of course the excessively high levels of unemployment in Spain means that there is very little disposable income around to spend on non essential consumer goods, and with a low demand you will always get a low supply in the home market, but with the Eurozone improving you would expect an increase in exports IF the products you manufacture are desirable and competitively priced.
Pretty much every Expat living in Spain that you talk to holds the view that Spain’s response to the recession has been to put the prices up, and whilst that is patently not true en masse, there is certainly evidence that it is true in many cases, and may go someway to explaining why Spain’s trade deficit has in fact got worse in recent months.
And the bad news continues …………
House sales and new mortgage applications continue to fall. Government debt on the other hand is rising with Spain’s general government borrowing requirement in the third quarter of 2009 around 33.96€ billion up from 31.2 billion in the second quarter.
So what does all this mean?
Unfortunately it hard to see any really good news on the horizon for Spain’s economy at the moment! The recent announcement that the Euribor rate has increased for the first time (think of it as the Eurozone Base Lending Rate) in a year means that mortgages are going to be more expensive. The government, both national and local, have increased prices of many services for 2010, and in July the ITV rate is going up, all of which is going to restrict the already poor domestic demand further.
It is hard to see that Spain is currently heading in any other direction than backwards!
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