The Year Before The Election

The worst case for growth of the Balearic economy in 2018 is a mere three per cent. The employers' confederation gives this as its forecast. The government is predicting 3.5%. Conservative is not how one would describe the government; its growth forecasts are invariably higher than those of analysts.

Whatever the actual growth, it will still be comparatively strong. It had always been expected that there would be a slowdown from the height achieved in 2016: 4.1% represented a remarkable recovery from how things had been five years previously when there was zero growth. So, a fall in growth can still be viewed in positive terms.

The current government has ridden the wave of economic good fortune, but the factors that have contributed to this have really had little to do with the government. They have been factors of greatly improved economic circumstance, partly attributable - say it quietly in front of a Balearic minister - to national government policies, austerity and all. But one factor stands out from any other - the contribution of tourism. In the Balearics, this has been magnified compared with much of Spain, but as the National Statistics Institute has revealed, the growth of the tourism economy since the dark days of crisis in 2010 has greatly outstripped the rest of the national economy in real terms.

It can seem perverse that the Balearic government is actively pursuing policies that might jeopardise the growth of the islands' most important sector. We all know why it is engaged in this perversity, and we all know how. Whether a doubling of the tourist tax, the rentals legislation, limits on tourist numbers turn out to harm the economy in 2018, I have my doubts. But there is a risk that there might be some harm, and heading towards the 2019 election, the government could be perceived as having willingly sought to undo the good fortune it had amassed through no real effort on its behalf.

The economy and tourism will, I suspect, be ok next year, but tourism is representative of how, politically, things might just start to unravel next year, especially if there were to be a dip. There are five ministries which in broad terms contribute to Balearic economic and competitive well-being. Tourism (and innovation and research) is one, the others are: education; employment, trade and industry; finance; and transport, energy and land (I exclude agriculture as it is of relatively minor significance).

Of these five ministries, four are controlled by PSOE, the major partner in the government. Més run tourism (and agriculture, for what it's worth). PSOE therefore have their hands on the means of moulding the economy, except tourism. Més were determined to keep their hands on tourism; hence, PSOE have had to accept Bel Busquets. They didn't want to accept her, they might even have preferred one of their own to take over from Biel Barceló. But they had no alternative. They had to accept her. If not, Més might have withdrawn support for the 2018 budget.

The politicking that surrounded Barceló's successor merely served to highlight the weakness of the coalition, and it also served as a foretaste of what could well come in 2018. The parties of government, plus Podemos, will be gearing up for the election. Points of difference will need to be made. They cannot just simply sweep the differences under the consensus and dialogue table. There are votes to be had.

The opposition have suggested that the government might not be able to agree a budget for 2019 for the very reason that the parties will be highlighting their points of difference. The opposition may be right, and for PSOE they will be emphasising their sound management of the four ministries. If the need arises, PSOE can distance themselves from tourism and they will have a readymade excuse: they hadn't wanted Busquets.

If Madrid does finally come up with a satisfactory new financing arrangement for the Balearics next year, then PSOE can take the plaudits: they do, after all, run the finance ministry (and the presidency). This financing deal is of immense importance politically. Secured, and PSOE can milk it electorally for all it's worth. All the consensus stuff can be forgotten, what PSOE will want more than anything is to be able to present the electorate with a very good reason for increasing their share of the vote. What PSOE don't want is to be as beholden to Més (and Podemos) after the election.

For Més, meanwhile, the loss of Barceló is significant. Like him or not, without him in a frontline position, Més are greatly diminished. Podemos will sense a weakness and so will PSOE. Exploiting a weakness while simultaneously boasting strengths could well define at least the latter half of 2018. The opposition isn't that strong - the PP might just decide they need a different leader; the real opposition will be within the government pact.

Tourism Growth And Electioneering

The Balearics tourism industry has been in Madrid this week for Fitur, one of the major tourism/travel fairs of the winter. Fitur is, therefore, an occasion for the islands' industry and government officials to hobnob with tour operators, airlines and others. Deals will be made and announcements will provide evidence that everything is rosy in the Balearic and Spanish tourism gardens. But even before Fitur got underway, there was the Global Tourism Forum, an event which seems specifically designed to allow politicians to say how good things are (well, it is organised by the national ministry for tourism after all). Suitably enough, there was Mariano Rajoy using data which shows how tourism grew last year to support his wider message of economic growth. This wasn't, however, a message that was well received by various organisations in the tourism industry; organisations such as CEHAT, the Spanish hoteliers federation, and Exceltur, the alliance for tourism excellence. They accused Rajoy of hijacking the tourist data for electioneering purposes, while arguing that, as tourism is proving to be so crucial to economic growth, the government should be doing more to help it by, for instance, reducing IVA. This call for a reduction in the tourist rate (currently 10%) has been a familiar one for several years, and just as familiar has been the refusal of the government to lower it.

José Manuel Soria, the tourism minister, closed the forum by considering the brave new world of the digital economy and how Spain was preparing for it. The country's tourism competitiveness will be enhanced by Spain becoming an "intelligent destination", which is one of those bits of jargon, like sustainability, that tourism politicians enjoy throwing around without ever actually explaining what it means. Meanwhile, the Balearics Tourism Agency was announcing its own version of tourism intelligence - the "Escaparte Turístico Inteligente" no less. And this is? Well, it means intelligent tourism showcase and it is an information system which may prove that the agency hasn't been sitting on its intelligent backside for the past couple of years after all. Long in the promise, it is, or should be, the grand system for social networking and all manner of new ways of tourism management and marketing that we have hoped for. But until it is actually up and running, we will have to hold back our excitement for the moment.

Someone else who was able to quote tourism statistics in Madrid was President Bauzá. The number of tourists coming to the Balearics in 2014 rose by 580,000, making 13,580,000 in total (in 2013 there had obviously been bang on 13 million tourists). 2015 should be even better, especially as a 10% growth in domestic tourism is being forecast. Putting something of a damper on the 2014 performance were the figures released by the national statistics institute which showed that overnight stays in hotels in the Balearics fell by 4% in 2014 (nationally they were up by almost 3%). So, how does one explain the apparent contradiction between what equated to a 4.5% increase in the number of tourists and the 4% drop in overnight stays? The answer will doubtless lie, once the hoteliers get round to explaining this with their usual propaganda, with all the tourists who don't stay in hotels and prefer to fill the pockets of the unfairly competing owners of private apartments and other unregulated accommodation. This may indeed be so, but Bauzá can't have it both ways. He can't brag about increases in tourist numbers while at the same time siding with the hoteliers and decrying a source of tourism growth. He will, though, don't worry about that.

There is, though, another way of interpreting the contradiction, and that is that tourists are opting for shorter holidays in ever greater numbers than previously. And, somewhat ironically perhaps, the new world of the intelligent, digital tourism economy facilitates this greatly, especially because it is the technologically and digitally switched-on Millennial generation which is characterised by its preference for more but shorter holidays. Furthermore, the regional government, with the assistance of Palma 365, is actively encouraging shorter stays through the promotion of city breaks.

Communication Breakdown: Balearic Government

The government of José Ramón Bauzá has many failings, but its greatest is arguably its inability to communicate effectively. In this it only has itself to blame, while by its own design it has allowed communication in a more general sense - media, the man and woman in the street, social networks - to be dominated by the battles it has sought.

If only. If only Bauzá had not bulldozed headlong into the great wall of Catalan, he might now be looking at higher poll ratings and looking forward to receiving the mandate which would allow him to realise his ambition for a second term - to complete what he says he has started. Instead, he chose his battles and he will die by the sword he has waved. If only he had not revised history by insisting there was a mandate for trilingual teaching when there was not. His constant reference to a manifesto which set this out, but which did not, has merely added to the discontent that TIL has aroused; he has constantly taken people for fools, those who have bothered to read the manifesto, that is. If only he had approached TIL in a consensual evolutionary fashion. If only he had not torn down the symbols and marked himself out as the enemy of Catalan through a conversion to the philosophies of Carlos Delgado and the Circulo Balear's Jorge Campos.

But this confrontation was wholly expected. Members of the Partido Popular now claim that Bauzá became someone they hadn't selected as leader in 2010 (rather than Delgado). This may be so, but his conversion was indecently swift. In December 2010, five months ahead of the regional elections, I wrote about Bauzá's intention to revise language law and of the divisions this had already created within the PP. Immediately after the election, I said that the good week the PP had enjoyed because of the election results might not look so good "when the divisions that exist within the PP in Mallorca re-surface". Not if. When. If leading lights within the PP had their concerns about the language policy, as many will now intimate, they failed to get it toned down, assuming they even tried.

Several months ahead of the last election, Manacor's mayor, Antoni Pastor (then still in the PP), was already at loggerheads with Bauzá over language and attitudes towards regionalism. When he spoke recently of the "hate" that has been brought to Mallorcan society by the Bauzá government, he was overdoing it, but there is no questioning the division that has been created; division which could have been predicted and indeed was.

Has the inability to communicate effectively been intentional? It seems perverse to believe that it has, but the Bauzá regime appears to have been content to allow the controversies to take centre stage. Perhaps the political ego of wishing to appear tough, even at the expense of social and indeed party harmony, has barged common sense out of the way along with communication that is more positive.

Bauzá inherited a difficult economic situation, and he is now able to say that the Balearics will enjoy two per cent growth in 2015. If only. If only the communication had been more effective, more sympathetic, less confrontational, people might now listen and believe that he has done well. Instead, an announcement of predicted growth sounds more like triumphalism and propaganda neatly timed with the months ebbing away before the election. Yet, he and the government can take credit for the improvement. It has had its luck, such as with the Arab Spring that benefited tourism, but it has also sought to enable growth. The tourism law, while by no means perfect, the farming law, the fishing law, an emphasis on technologies; they have all been examples of policies with investment, greater productivity and growth in mind.

Bauzá now boasts that his has been a reforming government, the most reforming government among the regions of Spain. There has been welcome reform and, even allowing for the mess created by the language policy, this also needed some reform because the bias towards Catalan had gone way too far under Antich. Nevertheless, there will be those who will call it reactionary and not reforming, just as there will be those who will point out that economic growth can increase inequalities, and a report last week highlighted just this.

Boasts about reform will cut little ice with the electorate. Economic good news should do, and it was the economy above all else which was the reason for Bauzá being in government. He should have stuck to the economy knitting and communicated the changes needed to right the economy in a more understanding way. But he hasn't, and so he only has himself to blame for the divisions and ruptures that have been caused and for inadequate communication that has merely intensified them. 

King For A New Day?: Spain going forward

The Spanish Government has unveiled its latest plan to reduce the country's budget deficit and to bring it within the European Union's 3% requirement by 2016. The plan will mean yet more cost-saving and revenue-raising measures and hefty ones, too. Four billion euros will need to be found in 2015 on top of the four billion for next year. Taken together, these measures don't sound like confidence will be returning to the economy any time soon.

Yet, there are signs of possible improvement even if they are only brought about by temporary economic activity and by some talking-up. Tourism is bound to create some better performance, but if it didn't, then something would be seriously wrong; Spain's summer tourism, if not its winter tourism, is benefiting from uncertainties and unrest in key competitor destinations. This better performance has been highlighted in the Balearics, though the talking-up has been based on statistical evidence which doesn't, in itself, equate to actual economic growth. A nine per cent increase in tourism spend in the Balearics over the first nine months of this year is not an especially reliable indicator, though it is up by five percentage points over the same period in 2012.

Let's say, therefore, that there are some encouraging signs, but tourism would need to keep its performance going and indeed improving. Tourism's contribution is essential while other sectors remain moribund, one of them being retail, and it is small wonder that this sector, and so increased consumer spend, continues to languish. Increased rates of value added tax (IVA) and of income tax have done nothing to encourage consumer confidence or to lend a hand to growth.

The chances of tax rates going down - the government had said that increases would only be temporary - are remote for the foreseeable future. They are likely to remain at least into 2015. Righting the deficit is, therefore, a greater priority than effecting genuine growth, despite what the government might say about growth prospects.

Most Spaniards give politicians' pronouncements or prognostications on growth in the short-term little credence. In the Balearics, there is little credence given to President Bauzá's ham-fisted use of tourism spend information as evidence of improvement. The most recent Gadeso survey of consumer sentiment showed that there is negligible confidence in the real economy.

It is, however, the utterances of non-politicians which might help with the talking-up. If politicians are not believed, then maybe bankers will be. What am I saying? They were the ones who helped to bring about Spain's economic problems. Can, therefore, the words of the chief executive of Santander, Emilio Botín, be trusted? He has said that money is "coming in from all directions" - to the stock exchange and in the form of direct inward investment into Spain. Perhaps he can be trusted, but he will surely know that there are certain aspects of economic life in Spain which are not especially welcoming to inward investors, those who want to operate in Spain anyway. These include, as an example, the harmfully high levels of social-security payments. This, social security, is something that requires serious attention. It cripples many of the self-employed as well.

If not the politicians or the bankers, then what about the royal family? King Juan Carlos, recently in hospital again, is a declining figure. But while he declines, his son, Felipe, grows. At a business conference in Panama the other day, he echoed what the boss of Santander said about increasing investor confidence. He probably would say this, but nevertheless Felipe is cutting an altogether more impressive figure these days.

For so long in his father's shadow, Felipe's stock has risen. He has been unaffected by the corruption scandal involving his brother-in-law, Iñaki Urdangarin, which has harmed his father and both his sisters (Elena far less than Cristina but still so because of links to the same financial advisor). Despite persistent rumours as to possible problems with his marriage, Felipe does seem to be benefiting from better PR. He was the one representative at Madrid's somewhat shambolic Olympic bid presentation to come out with any credit. He spoke well. He showed the right blend of gravitas and communicativeness. He was impressive.

If Spain does come out of the doldrums, it needs to look forward and to show a new face. Too much of what is being shown by politicians is looking backward, an example being with the renewed emphasis on religion in education. If there is to be a new dawn in the hopefully not too distant future, then a young(ish) figurehead should be there to herald it, one who is increasingly confident both nationally and internationally and who would be representative of what might become a new but more sensible Spain.

MALLORCA TODAY - Balearics will see minimal growth in 2013

The regional government in the Balearics has admitted that there will be barely any growth of the economy during 2013: at most by an increase of 0.3%. Employment is not expected to show a significant rise until 2014. The region has failed to meet a target of reducing its deficit to 1.5% in 2012, but the government says that the deficit is not as much as 2%.

See more: Diario de Mallorca

Multiplying By Zero: Recession and tourism

You say recession, we say growth. The Centre for Economic Research (Centre de Recerca Econòmica, CRE) is the "you", the Balearic Government is the "we". Forecasts that the Balearics will fall back into recession in the third quarter of this year have been countered by the government. No recession, it says; there will be slight growth. And as ever, the slight growth will come because of tourism, or so the government would hope.

The eternal optimism that flows from tourism coming to the rescue is not, however, one that is shared by the CRE. Serious attention should be paid to what the CRE is saying, because if a myth being debunked can be said to have a sound, then there is an awful lot of noise coming from the CRE.

It says that the multiplier effect of tourism on the Balearic economy has been shrinking. And this means? In basic terms, the multiplier effect refers to how an increase in spending results in an increase in the income of a country (or a region, in the case of the Balearics) that is greater than the increase in spending (hence the multiplier). Essentially, if there is a strong multiplier effect, then there will be decent growth. The problem arises when the spending doesn't increase.

And this - spending - is just the problem that the Balearics have. Spending by tourists, that is.

Intuitively, anyone can tell you that tourism spending has been declining. At least, this has been the experience for many businesses right in the front line - bars, restaurants and so on. Counter-intuitively, statistics related to tourism spending, stays and arrivals that the government trots out ad nauseam show increases in spending. They haven't always but generally they have. The CRE says that government figures are misleading. You bet they are.

The CRE's report is damning. The multiplier effect of tourism has been shrinking not since the economic crisis started but since the turn of the century. It is an industry that has, says the CRE, lost productivity and competitiveness. In other words, it is not maximising returns on its resources, and one reason why is because Balearic tourism simply doesn't spend enough. The CRE argues that, in order to activate genuine growth (and growth that might be sustainable), there has to be a focus on more profitable tourism.

I don't like to say that I told you so, but if you have followed what I have written over the years about local tourism, then you will know that I have told you. For example, I have referred to key research from the early 1990s which proved that a percentage (approximately 10%) of tourism equated to a net loss. This percentage has to have increased since the onset of market change of low-grade all-inclusive tourism from around the mid-1990s. Another example: tourism spend statistics are misleading, as a good chunk of the spend is not spend that finds its way into the local economy as the statistics include spend made to tour operators and airlines.

The productivity return on resources is inevitably going to be less than it might be when there are so many resources unemployed for such a lengthy period of time. These are not just the human resources of the dole queues, they are also the physical resources of hotels; vast amounts of expensive real estate that inflates the price of property in general but which is unused for anything up to six months of the year.

The obscenity of this unused resource contributes, in turn, to an inhibitor to growth because of the high costs associated with residential property which lead to a lowering of disposable consumer spend. Furthermore, low wages, as are paid to many within the tourism sector that is meant to drive economic growth, mean a lack of competitiveness.

At the same time as there is renewed talk of recession (or not), the government has been forced to backtrack on one element of its new tourism law, that of stipulating that hotels which convert to condos would have to be open eight months a year. The eight months are now back to six. The best intentions of government to try and address the lack of hotel productivity have been undermined.

The CRE's report might just be thought of as another piece of economic blah-blah, but it should not be dismissed as such. In a nutshell, it has exposed the fundamental problem of the Balearics economy, one that is so reliant on tourism, and one which - and this is the only conclusion that can be drawn - will not achieve sustainable growth unless there is a rethinking of tourism strategy.


Any comments to andrew@thealcudiaguide.com please.

Mariano And The Mess

Who on earth would want to be a Spanish prime minister? Well, Mariano Rajoy for one, though why is anyone's guess. It says much for political ambition that you would willingly enter the lions' den unprotected and smelling of dinner. Deficit, highest unemployment rate in Europe, virtually no growth. Presumably, in the words of the election song of a certain former prime minister, things can only get better. Actually, they can't; they can only get worse, and they already have.

Surprise has been expressed that the markets have reacted with a massive thumbs-down. That's not how it's meant to work. Good, right-wing, slash-and-burn politico takes over, and the markets are supposed to cheer at the fall of the squandering, bumbling incompetents from the left. They might have done were it not for the fact that Rajoy has to wait a few weeks before getting his backside onto the prime ministerial seat. There are procedures, you know, post-electoral ones, and the markets are being blamed for not understanding that it takes weeks for the Spanish to sort these procedures out. Perhaps Spanish politicians should try understanding how markets work, though they have shown little evidence that they do.

The hiatus following the election is just one reason why the markets have reacted so negatively. Another is that they really don't have much confidence in Rajoy and the Partido Popular as they know full well that there is precious little that Rajoy can actually do. Yep, it's a great time to be taking over as prime minister, knowing that you are totally emasculated and are dead meat even before you start.

If he were allowed into the prime ministerial office now, he would be flashing into the night sky over the Gotham City of Spain the distress image of the Euro and getting Angela and Nicolas racing from the ECB Batcave. "There are only 24 hours to save Spain, Robin." Which isn't too far from the truth, as each day brings with it ever more woe. Or perhaps he would be sending out an SOS and hoping that Thunderbird 5 picks it up. "Brains, any ideas as to how we can rescue Spain?" "Er, er, well, er, Mr. Tracy, we'll have to dig very deep. Cut very deep." "Right, Brains. Virgil, take Thunderbird 2's austerity mole pod." "F.A.B., father."

Oh that it was as simple as sending out a distress signal and International Rescue comes and makes everything all right. What am I saying? This is pretty much how it is. The IMF or the European Central Bank buying up Spanish debt as quickly as it can be issued in order to give Rajoy some breathing space to stutter his words of reforms before they cart him off to the Papandreou Home For Distressed European Leaders.

There's the deficit and then there's employment creation. It's not going to happen, because JP Morgan says so. Yes you can always rely on what banks say - they got everyone into the mess and now they can gloat at everyone's misfortune; JP Morgan reckons unemployment in Spain will rise to 27% next year. Rajoy, if and when he can get his scissors out, is going to have to cut so deep that unemployment will continue its upward march and growth its downward slump. Here comes another recession. Not that the first one ever really went away.

In an ideal world, and you may have noticed that the world currently isn't ideal, Rajoy would set in motion much-needed plans to restructure Spain's economy and not just its finances. Investment in new industries to break the dependence, certainly in some regions of Spain, on construction and tourism has been demanded for years. But where would the investment come from now? Even if the banks weren't suffering liquidity problems or weren't applying a squeeze and even if the government had spare pots of cash lying around, the results would take years to bear fruit. And Rajoy hasn't got years. He's barely got days.

Some proposals like tax cuts for smaller businesses could help with stimulating the economy, but what really might would be lowering the burden on social security payments. A reduction in IVA for the tourism industry, however, would be senseless. Tax receipts have gone up this year, thanks in part to the rise in IVA, and they are likely to be up again next year.

Rajoy has inherited a God awful mess. He should demand our sympathy, but then he wanted to be prime minister. So he should get on and sort it. But he can't, not yet, because procedures don't allow it. Incredible.


Any comments to andrew@thealcudiaguide.com please.

MALLORCA TODAY - Further revision to Balearics' growth forecast

Finance minister Carles Manera, responding to last week's independent forecast of lower economic growth in the Balearics this year than that of Manera's regional government, has today increased the government's forecast to as high as 1.3%. The cause for much of this optimism lies with the positive predictions for this summer's tourism as well as with the fact, as pointed out on this blog last week, that the Balearics were unique in being the only region of Spain to show a fall in unemployment in February.

MALLORCA TODAY - Balearics economic recovery stalls

According to the centre for economic investigation, growth in the Balearics economy has hit something of an obstruction, there having been a cooling in the final quarter of 2010. The centre is placing growth in the Balearics at 0.5% this year, lower than the 0.6 or 0.7% that the regional government finance minister had suggested last week. However, the improvement in unemployment figures for February, the Balearics being the only region of Spain to have experienced a fall, suggests that there may be more positive signs of slow recovery.

MALLORCA TODAY - Balearic economy buoyed by tourism

The forecasts for a very good tourism season, helped by situations in north Africa, should mean higher than anticipated economic growth in the Balearics this year. Regional government finance minister Carles Manera has announced that a revision has been made to the growth forecast, now putting it at between 0.6 and 0.7 per cent.