Spain’s crisis expected to subside

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SpainFlag

REUTERS

A Spanish flag flutters in the wind near a statue of Columbus in Madrid.

Madrid - Spain's economic crisis is expected to start subsiding at the end of the year - but after it is over, the country may never be the same again.

The crisis is fuelling structural changes that are modernising the economy and making it more competitive, economist Rafael Pampillon from IE Business School told dpa.

But Spain also risks emerging from the crisis as a more divided nation with a greater risk of social unrest, said Miguel Angel Garcia, an economist with CCOO, one of Spain's two big trade union confederations.

“Crises always give lessons and teach things, and from this crisis, which is so deep, we will come out with an economic system and an outlook that are very different from what existed until 2007,” European Competition Commissioner Joaquin Almunia told dpa Insight EU.

The Spanish commissioner was talking about all of the eurozone, where especially the southern countries face challenges similar to Spain.

The meltdown of Spain's key property sector worsened the effects of the global crisis. The country is in its second recession in three years, while unemployment has jumped to a massive 26 per cent.

Unemployment is contributing to a drastic fall in internal consumption -more than 6 per cent from mid-2008 to the third quarter of 2012 - which is also being curtailed by high levels of private debt.

During the 1995-2007 economic boom, Spanish families and companies ran debts which now amount to twice the country's annual gross domestic product, Garcia told dpa.

Such a large part of Spaniards' savings go into paying mortgages and other types of debt, that “it is changing habits of consumption and investment,” the economist said.

The government has meanwhile made firing workers easier and cut social benefits, creating a more insecure environment which is prompting those who still have jobs to save even more for the future.

“I make do with old clothes, never eat out, and do not even think of replacing my slow computer,” said Jose, a renewable energy technician.

The decline in consumption has ruined tens of thousands of retail companies. Closed down shops, displaying the sign “premises to rent,” can be seen all over Madrid.

Consumption is also undermined by an ageing population - with less money to spend. Consumption may never return to pre-crisis levels, according to the daily El Pais.

Garcia and Pampillon believe it will take at least a decade for consumption to fully pick up again - a situation that is forcing Spain to rely on exports.

Exports of goods and services accounted for 32 per cent of gross domestic product in 2012, up from 24 per cent in 2004, according to figures given by Pampillon.

In 2012, exports went up in most economic sectors, the government said this week. They included foodstuffs, chemical products, industrial machinery and engines. Sales increased to destinations such as Germany, Morocco or Australia.

Spanish companies also export engineering projects, financial services and business counselling to Latin America, Pampillon said.

That is changing economic structures in a way that had long been called for - boosting modern, high-tech sectors, while the crisis has reduced what experts agreed was an excessive reliance on the construction sector.

But exports cannot create enough jobs, especially among low-skilled workers left stranded by the property crash.

Studies meanwhile point to deepening social differences between the highest and lowest earners. The crisis has weakened the middle class by plunging millions of its members into poverty or economic precariousness.

Spain is among the EU countries where the gulf between the richest and poorest segments of the population is the widest, according to the statistics body Eurostat.

The European Union should allow Spain to relax some of its austerity policies, which contribute to paralysing the domestic market, Garcia said.

Prime Minister Mariano Rajoy on Wednesday took a step towards galvanising the internal market, announcing measures in favour of small and medium-sized companies.

If high levels of unemployment persist for five more years, “social inequality will become structural” in the country, Garcia warned. - Sapa-dpa


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