Thursday, January 31, 2013

The Incredible Shrinking Spanish Economy

The Spanish economy shrank again in the final quarter of 2012. The provisional figure for the slump during the whole of 2012 is 1.4%, worse than the Bank of Spain had been predicting only a few days ago. Never mind though, the minister for the economy, Luis de Guindos, says that the slump hasn't been as bad as predicted. You pays yer money, you takes yer choice as to whose version you prefer. If you had any money, that is.

The output figure is one piece of bad economic news, the other is the level of unemployment - 26% of the total workforce, with unemployment among the young now reaching 60%. Sixty per cent. Just hold that thought and ask yourself what the future holds for this unemployed youth.

The lost generation of Spain's youth is increasingly looking abroad for work. Overall, there was an exit of over 40,000 people from Spain during the first half of 2012, and many of them are heading to the UK. As the Trans-Iberian blog from "El País" points out, the volume of applications for UK National Insurance numbers by Spanish migrants is second only to those made by people from Pakistan.

It's not as if the young are going to the UK and finding employment commensurate with their qualifications. They are taking bar work, any menial tasks, but at least there is some prospect of work. What is there in Spain? Nada.

The recessionary statistic for the final quarter should not come as a great surprise. It can be partly explained by consumption having been squeezed into the third quarter in order to avoid the rise in prices as a consequence of the increase in IVA (VAT) at the start of September. There are other factors, though, one of them being an impact of the government's labour reforms. Welcomed by some, these reforms have nevertheless contributed to a further weakening of confidence. If job security is lessened, so is the temptation to consume.

De Guindos reckons that positive growth will return in the second half of this year. He may be right, but you shouldn't put money on this either. De Guindos is prone to talking rubbish. (The IMF haven't said as much but disagree with his forecast.) At the end of April last year, let me remind you, he dismissed the idea of increasing IVA until this year. His rationale, if you can consider it rational, was that growth would have kicked in in 2013 and so the time would have arrived to raise indirect tax. Seriously, this is a minister responsible for economic affairs. Not only was he wrong about the IVA rise, as it was made four months later, he was also wrong in his thinking. If there were growth, the last thing that was needed was to stop it in its tracks by increasing tax.

It is a cliché to suggest that politicians don't know what they are doing. Some do. But as far as Spain's are concerned, they do their utmost in proving the cliché to be right. The austerity measures are taking Spain nowhere, except further inside its own basket case. The enormity of the poverty of political economic thought is matched only by the enormity of the brassnecked spin. Take the Balearics own economic genius, José Aguilo. Tax increases will stimulate the economy, he stated earlier this month. The screeches of laughter were drowned out only by the screams of despair. Aguiló's probably next in line for a Madrid cabinet position.

The Balearics finance (and employment and business) minister believes that the rise in taxes will help entrepreneurs because of a consequent lowering in interest rates. But who will be doing any lending? Entrepreneurship is the current flavour of the month of both the regional and national government. Rajoy has announced tax cuts for young entrepreneurs. So what? Growth measures are what will help these entrepreneurs. And credit. Unavailable credit.

But what about tax cuts for everyone else? There is a growing counter-argument to the austerity strategy imposed by the Spanish Government and imposed on it by forces from outside. Spain's problems with its borrowing rate have been eased thanks to European Central Bank intervention. We know what the pound (or euro) of flesh has had to be for this intervention, but what on earth is austerity ever going to achieve? Consider this. If it takes 2% economic growth to cut unemployment by 1% (a not untypical ratio), how long will it be before the 26% unemployment rate is lowered at all significantly? An awfully long time, always assuming there were such growth. And where's this going to come from?

Any comments to please.

Index for January 2013

Balearics tourism promotion action plan - 26 January 2013
Bishop of Mallorca - 12 January 2013
Bradley Wiggins and cycling tourism promotion - 27 January 2013
Broadcasting interference in Spain - 24 January 2013
Floating Spain on the stock market - 2 January 2013
Foodstagramming - 29 January 2013
Glosadors - 13 January 2013
Hainan: where Mallorca can't compete - 4 January 2013
Handball - 16 January 2013
Health and safety and traditions - 9 January 2012
Ill Manors adaptation - 19 January 2013
Luis Bárcenas and Partido Popular corruption - 21 January 2013
Madrid Olympics bid - 3 January 2013
Magalluf and Trip Advisor - 30 January 2013
Mallorcan attitudes and winter tourism - 6 January 2013
Osborne bull vandalised again - 1 January 2013
Paradores - 25 January 2013
Pollensa festival funding - 22 January 2013
Porto Cristo's name - 17 January 2013
Reading and misinterpretation or misunderstanding - 7 January 2013
Sant Sebastià: the legend and gay icon - 14 January 2013
Spain stuck in the 1930s - 28 January 2013
Spanish and Latin rock music - 23 January 2013
Spanish economy and unemployment - 31 January 2013
Spanish military, Republicanism and independence - 11 January 2013
The Truth About Magalluf - 5 January 2013, 10 January 2013, 20 January 2013
Tourism areas developments - 8 January 2013
UK resident population in Mallorca - 18 January 2013
Winter season: will there ever be one? - 15 January 2013

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