Spains Pains – US-FOREX.US
Pity Spain. While stimulus packages offered by the German and French governments quickly helped lift those nations out of recession in the past quarter, Spain had no such luck, and shrank by a more-than-expected 1% quarter-on quarter, its National Statistics Institute said Friday.It also doesn’t look like the situation will pick up any time soon. “We are likely to see a few more quarters of negative growth into late next year,” said Dominic Bryant, an economist at BNP Paribas in London. “Spain will under-perform France, Germany and even Britain.” The International Monetary Fund predicts that Germany’s economy will contract by 6.2% this year, versus Spain’s 4%, but the Germans have been helped by a combination of various stimulus measures offered by Angela Merkel’s government, such as a car scrapping scheme, and short-term state subsidies of wages.
What France – which had been forecast to shrink 3% by the IMF – has going for it is a more diversified economy – its domestic demand isn’t as weak as Germany’s is so it’s less vulnerable. Spain’s trouble is that its companies and residents are going to have be weaned off the massive lending spree they’ve been living off which will make a recovery more protracted and more painful. Household debt levels have traditionally been in the region of 90% of gross domestic product, compared to a 55% to 60% average for the euro zone excluding Spain, according BNP Paribas estimates. While the credit crisis has forced the population to move from being net borrowers to net savers, its corporate sector is still grappling with its dependence on debt. “Banks that were willing to lend to these companies during the boom years are no longer willing to lend or when it comes to renewing loans don’t extend it, or give a smaller amount or a higher rate of interest,” says Bryant.Spain’s massive corporate sector troubles have forced many companies to lay off workers – in June, the unemployment rate rose to a staggering 17.9%, triggering the government to approve a special payment program whereby 340,000 jobless would be eligible for a monthly payment.At least, things don’t seem to be getting worse: in the first quarter of the year the economy shrank by 1.9%.
One upside for Spain: unlike countries such as Britain, Switzerland, Germany and France, which have had to spend billions on supporting banks such as Royal Bank of Scotland
and UBS
, the regulatory system that Spain has had in place for many years has meant that despite the huge increase in bad loans on both the corporate and consumer side, Banco Santander
and BBVA
- the country’s two largest banks – won’t need any state support. Under Spain’s nifty system they had to put extra money aside in the good times to prepare for dark days like these.