Confidence Trick: Spanish consumers

Who are the least pessimistic consumers in Europe? There are no prizes for guessing that the Germans are the most optimistic, but there is a prize for guessing that they are followed in the pessimism/optimism stakes by the Spanish.

The Germany-based market research organisation GfK issues regular surveys of consumer confidence across Europe, and its latest report suggests that, though Spanish consumers have certain reservations, they are far less anxious than their counterparts in countries such as Italy, France and the UK.

Set against the background of the economic woes afflicting Spain, the finding is little short of staggering. It may reflect a confidence "bounce" on the back of the Partido Popular's election victory in November, but even this might be questionable, given that the Rajoy government has done nothing to hint that there will be growth and has done everything to set out a plan for austerity with a Merkozy seal of approval.

The Germans have praised the government for the intent it has shown in introducing labour reforms, so in this respect Rajoy might be moving Spain away from the abyss. The latest Greek bail-out (assuming it does happen) also removes a short-term prospect of the markets finding the next candidate to take down, one of which remains Spain. There is some stability, albeit shaky, and it is this perception of stability that the consumers in the GfK survey seem to be responding to.

It is difficult, however, to be optimistic in believing that the more optimistic consumers of Spain are experiencing anything other than a transitory and passing state of euphoria. Either this or they are seriously deluding themselves. Or they, the participants in the survey, represent a particular group of society and one from the wealthier and more industrialised parts of Spain.

The painful truth is that there is an awful lot more pain to be endured, and for the foreseeable future. The survey participants are realistic enough to express the reservation that they don't anticipate a return to something like growth for a further three years, but there are plenty of commentators and analysts who would question whether even this is likely.

The government's priority of deficit reduction, together with a lack of finance either from governmental sources or the banking sector, creates a double whammy of economic stasis. The only good news is that if there genuinely is as much optimism among Spain's consumers as the GfK survey suggests, then this could drive some growth. Otherwise, Spain would have to look to exports as a means of economic take-off (which includes tourism).

Denied the conventional tool of increasing competitiveness through currency devaluation, the other option to assist exports is to opt for an internal devaluation, which means a reduction in labour costs. Force this policy and all hell could break out, and an export-driven recovery wouldn't necessarily work anyway; there are, after all, many other European countries with considerably lower levels of confidence than Spain is meant to have.

An internal devaluation would be in line with arguments that Spain's labour costs are simply too high, but there would doubtless be many an employee, who might actually be grateful to be an employee, who would argue otherwise. If an export-led recovery failed, where would that leave the country? Without any domestic consumption to initiate growth because everyone has had their wages cut or is on the dole.

The government's labour reforms do actually offer the possibility of internal devaluation, as companies would be enabled to reduce salaries during periods of downturn. And what is the current situation if not a downturn? It is small wonder that the unions are threatening a general strike.

As far as tourism as an element of economic recovery is concerned, the GfK survey has found that the British are way up the list of those with a tendency to seek savings of whatever sort. And this doesn't represent particularly good news for Mallorcan tourism businesses, already reeling from several years of lower spend. Nor does a previous GfK survey which suggests that the traditional fortnight holiday is itself being cut more and more - to ten or seven days.

While tourism as export will continue to be a means of economic salvation, it will also continue to mean tourism that places the lion's share of its money into hands that aren't necessarily Spanish and that whatever is left over is spent only sparingly and handed over to staff with long faces who have found that their wages have been cut.

Spanish consumers may be more optimistic than those in other countries, but you do have to ask - who are they?


Any comments to andrew@thealcudiaguide.com please.