AMBROSE EVANS-PRITCHARD: Spain tips into Depression!
Spain is sliding into a full-blown economic Depression with unemployment approaching levels not seen since the Second Republic of the 1930s and little chance of recovery until well into the next decade, according to a clutch of reports over recent days.
By Ambrose Evans-Pritchard
LONDON, England - September 24, 2009 - The Madrid research group RR de Acuña & Asociados said the collapse of Spain's building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11% of GDP. The grim forecast is starkly at odds with claims by premier Jose Luis Zapatero, who still says Spain's recession will be milder than elsewhere in Europe.
RR de Acuña said the overhang of unsold properties on the market, or still being built, has reached 1,623,000. This dwarfs annual demand of 218,000, and will take six or seven years to clear. The group said Spain's unemployment will peak at around 25%, comparable to the worst chapter of the Great Depression.
Spanish workers typically receive 50% to 60% of their former pay for eighteen months after losing their job. Then the guillotine falls. Spain's parliament has rushed through a law guaranteeing €420 a month for long-term unemployed, but this will not prevent a social crisis if the slump drags on.
Separately, UBS said unemployment will reach 4.8 million and may go as high as 5.4 million if the job purge in the service sector gathers pace. There is the growing risk of a "Lost Decade" akin to Japan's malaise after the Nikkei bubble.
Roberto Ruiz, the bank's Spain strategist, said salaries must fall by 10% in real terms to regain lost competitiveness, replicating the sort of wage squeeze seen in Germany after reunification.
There is no sign yet that either Spanish trade unions or the Zapatero government are ready for such draconian measures. Talks between the unions and Spain's industry federation (CEOE) broke down in acrimony in July.
Mr. Ruiz said the construction sector will shrink from 18% of GDP at the peak of the boom to around 5%, making it unlikely that there will be any significant recovery before 2012. Even then growth will be "slow, weak, and fragile".
The Spanish government can do little to cushion the downturn. "The room for maneuver in fiscal policy has been exhausted," said Mr. Ruiz.
By Ambrose Evans-Pritchard
LONDON, England - September 24, 2009 - The Madrid research group RR de Acuña & Asociados said the collapse of Spain's building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11% of GDP. The grim forecast is starkly at odds with claims by premier Jose Luis Zapatero, who still says Spain's recession will be milder than elsewhere in Europe.
RR de Acuña said the overhang of unsold properties on the market, or still being built, has reached 1,623,000. This dwarfs annual demand of 218,000, and will take six or seven years to clear. The group said Spain's unemployment will peak at around 25%, comparable to the worst chapter of the Great Depression.
Spanish workers typically receive 50% to 60% of their former pay for eighteen months after losing their job. Then the guillotine falls. Spain's parliament has rushed through a law guaranteeing €420 a month for long-term unemployed, but this will not prevent a social crisis if the slump drags on.
Separately, UBS said unemployment will reach 4.8 million and may go as high as 5.4 million if the job purge in the service sector gathers pace. There is the growing risk of a "Lost Decade" akin to Japan's malaise after the Nikkei bubble.
Roberto Ruiz, the bank's Spain strategist, said salaries must fall by 10% in real terms to regain lost competitiveness, replicating the sort of wage squeeze seen in Germany after reunification.
There is no sign yet that either Spanish trade unions or the Zapatero government are ready for such draconian measures. Talks between the unions and Spain's industry federation (CEOE) broke down in acrimony in July.
Mr. Ruiz said the construction sector will shrink from 18% of GDP at the peak of the boom to around 5%, making it unlikely that there will be any significant recovery before 2012. Even then growth will be "slow, weak, and fragile".
The Spanish government can do little to cushion the downturn. "The room for maneuver in fiscal policy has been exhausted," said Mr. Ruiz.
