Spain, Europe’s fifth-biggest economy, entered recession in the fourth quarter for the first time in 15 years official data from the National Statistics Office showed this week. Gross domestic product contracted by 1.0 percent during the last three months of 2008 over the level of the previous quarter and was down by 0.7 percent from the fourth quarter 12 months earlier. The statistics office also reported that the economy shrank by a revised 0.3 percent in the third quarter from the previous quarter. Really there is nothing especially new here when compared with the earlier Bank of Spain report.
Morgan Stanley forecasts that the “sizeable” infrastructure spending announced by the government will become noticeable only at the end of 2009 with a “muted recovery” likely the following year.
Capital Economics is a bit more pessimistic. It predicts that it might not be until 2011 before the Spanish economy stages any meaningful recovery.
And Edward Hugh (that’s me) predicts that there is no recovery in sight, only a very painful correction in the current account deficit and downsizing on the construction sector as prices fall some 20% or so relative to the eurozone average, so that exports can take over as the growth driver (deleveraging and recovery in household balance sheets to be the tonic regulating internal demand from now to 2015). 2011 will be the hardest year as it becomes increasingly difficult for the government to borrow money externally and the deficit has to be capped, while a second credit crunch will take hold internally, as the walking dead builders and property developers finally find it impossible to keep rolling over their non-performing loans.
And if you think I am being to strong, just remember, apart from pumping in money to keep the property sector alive till 2011, no one (neither the PP nor the PSOE) is planning to embark on anything in the way of deep structural reform to transform the economy if the responses to Bank of Spain Governor Miguel Fernandez OrdoÃ±ez’s proposals (earlier this week) are anything to go by. Not even worth talking about, just no, no and no! So I guess we all now know what to expect.