SPAIN Going Down

[AnonymousParticipant]

Hmmm, maybe I shouldnt complete on that property after all. If it ends up like Ireland we could see 50% off peak prices.

MADRID — Spain’s economic crisis will deepen over the coming months and unemployment will top 19 percent next year as global demand remains weak and companies invest much less in capital goods, the Bank of Spain said Friday.

The central bank predicted that the Spanish economy would shrink by 3 percent this year, nearly double the drop of 1.6 percent forecast by the government. The bank said the economy would contract another 1 percent next year.

“The Spanish economy is immersed in a period of deep contraction, where the unemployment rate, unless measures are taken, will rise to a very worrying level,” the Bank of Spain’s governor, Miguel Ángel Fernández Ordóñez, said Friday, according to Reuters.

The Spanish economy expanded faster than almost any other economy in Europe over the past decade, but economic activity has dropped quickly over the past year as the construction sector collapsed and the global crisis hit.

In a monthly report, the central bank said the unemployment rate would rise to 17 percent this year and 19.4 percent in 2010, more than twice the rate predicted for the euro zone this week by the Organization for Economic Cooperation and Development.

Xavier Segura, chief economist at the savings bank Caixa Catalunya, said the grim predictions had not been unexpected, even though they differed from the more optimistic outlook offered by Prime Minister José Luis Rodríguez Zapatero. Mr. Zapatero this week said the recession would bottom out at the end of this year. The central bank on Friday said that this would not happen until late 2010.

“These figures are further confirmation that this recession is much more severe than any of us originally believed,” Mr. Segura said by telephone. “It is so intense that our predictions cannot keep pace.”

The estimated 24.3 percent decline in investment in capital goods this year was an alarming augur of rising unemployment, Mr. Segura said. “This is really worrying,” he said. “The investments made today are the jobs of tomorrow.”

The bank predicted that the public sector deficit would rise to 8.3 percent of gross domestic product this year and 8.7 percent in 2010 as the government spent more money on unemployment benefits and public works programs and collected less in taxes.

It warned that the rising ratio of public debt to gross domestic product, which it said would reach about 50 percent this year, underlined the “little room for maneuver that exists to continue using deficit spending to spur consumption.”

Mr. Ordóñez has urged the government to reform Spain’s rigid labor market, making it less onerous for businesses to lay off people and easier to hire them on stable contracts.

Mr. Segura said that in addition to spending billions of euros on public infrastructure projects, the government needed to take long-term measures to improve productivity.

“We need to change the model of growth,” he said. “The problem is that it’s when you are in a positive economic cycle that you should foment value-added activity. When you are in a crisis with high unemployment you have to feed money to local governments for labor-intensive public works.”

[AnonymousParticipant]

This is a good time to review all aspects of the workings of the Country. The most crucial is it Taxation, specially towards non residents, a complete modernisation of the civil service, Uplifting of legal system and the business practises.

[Author]

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