Solbes Says Spain Faces Deepest Recession in 50 Years
Spain faces its deepest recession in half a century, Finance Minister Pedro Solbes said.
The Spanish economy will contract 1.6 percent this year, Solbes said today. That compares with a median forecast for a 1.8 percent contraction in a Bloomberg News survey of 21 economists. In July, the minister predicted a 1 percent expansion.
“Problems are still appearing and they are getting more and more serious,” said Antonio Argandona, a professor at Iese business school in Madrid. “The recovery plan may be much more expensive than they think and it may not even work.”
Solbes has pledged some 90 billion euros ($120 billion) of stimulus measures in a battle to hold the economy together as the fallout from the housing crash and the credit crunch rips through its manufacturing and service industries. A year ago, Solbes was preparing to report the biggest budget surplus in Spanish history; now the government may be about to have its debt rating cut by Standard & Poor’s.
“The financial crisis that exists at the moment at the global level has changed the scenario very drastically,” Solbes said. In 2009, “we’re going to live through the most difficult moments of the crisis.”
Spain’s economy will return to growth next year, expanding 1.2 percent, Solbes said. It will grow 2.6 percent in 2011.
‘Wishful Thinking’
That’s “wishful thinking,” said Dominic Bryant, an economist at BNP Paribas in London, who forecasts contractions of 3 percent this year and 1.2 percent next year. “Spain has got some painful adjustments to make in its domestic economy over a number of years.”
Still, “governments prefer to drip-feed the bad news a bit,” Bryant said.
Activity in services contracted at the fastest pace on record in November, while manufacturing posted its biggest monthly decline in December, according to surveys of purchasing managers cash advance no fax. The number of jobless claimants jumped by almost a million last year, sending unemployment to 13.4 percent by November, compared with Solbes’s July forecast for 10.4 percent.
Solbes said the economy shrank during the second half of 2008, confirming the country is already in a recession. With tax revenue plummeting, S&P this week said it may cut Spain’s AAA rating for long-term government debt.
Budget Deficit
Unemployment this year will reach 15.9 percent before falling to 14.9 percent in 2011, Solbes said. Spain’s budget deficit will peak at 5.8 percent of gross domestic product this year and then narrow to 3.9 percent of GDP in 2011. That will mean Spain exceeds the European Union’s 3 percent deficit limit for four straight years.
“Necessarily they have to open an excessive deficit procedure,” Solbes said. “That will be the case for Spain and other member states.”
Spain’s government borrowing will increase to 47 percent of GDP this year from 36 percent at the end of 2007. It will reach at least 53 percent by 2011.
Solbes faced criticism from political opponents in Spain for pushing through a budget based on the 1 percent forecast even as he admitted it was out of date. In December 2007, he said that the economy would grow by 3 percent this year, even as the U.S. mortgage meltdown shut off the flood of credit that fueled Spain’s home-building splurge.
“They’ve been pretty optimistic,” said Ben May, an economist at Capital Economics Ltd. in London who forecasts a 3 percent contraction this year. “You eventually lose face a bit.”
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