Weak domestic demand dragged down output in the eurozone’s fourth largest economy, which has been shrinking since mid-2011.
The GDP of Spain has fallen by another 0.5 % this year. There is no hope of its recovery until the end of this year. The country’s is headed to recession, yet again. There has been a slowdown in consumer spending, rise in unemployment and predictions of further decline in housing prices. Spain suffers from uncompetitiveness inside the Euro zone, a tumbling banking sector, excessive household debts and harsh government austerity. The housing market continued to be a drag on the growth. Housing prices have fallen by more than 40% in some areas. Families are unable to sell their homes mainly due to their ‘negative equity’. Negative equity occurs when the value of an asset falls below the outstanding balance of the loan required to purchase an asset. It is calculated by taking the value of the asset less the balance outstanding debt on it.
“Spanish households are the worst affected” said Sophie Tahiri, an economist from S&P. Imports have also reduced sharply, indicating a slump in consumer and business demand. However, there has been a surge in the exports in Spain, giving its economy a momentary boost and a much needed foreign income. The rise in exports has also reduced the country’s budget deficit to its lowest level since the banking crash. There has been an increase in the exports to the extent 4.4 % and imports are down to 8.2 % which has helped the reduce the current account deficit of 1.3 billion pounds, less than a quarter reported last year. Exports have increased by 38.6 % compared to the previous year as Spanish goods have become more competitive following a fall in wages. Spain’s central bank has revised its growth forecast from 0.3 % to 1.3 %. It has predicted a growth of 1.3 % by 2014. Government spending cuts have taken a heavy toll on the Spanish economy, the latest figures show the unemployment has reached a staggering 26% of the workforce, the highest rate since the country returned to democracy in the year 1975.
Less Attractive
Immigrants have fled the country due to the economic instability and lack of jobs. The National Statistic Institute (NSI) said the number of residents dropped by 206,000 to 47.1 million, the decline entirely accounted by foreigners. Immigrants mainly from Ecuador and Columbia have fled the country seeking employment in other countries. The figures show that the ongoing economic crisis has reversed the country’s rapid growth in population last decade.
Austerity Measures
The government has already introduced the tax on bank deposits which applies to the financial institutions from which the government expects to collect between 250 to 300 million euros ( $ 325 -390 million). Another measure which has been introduced is the “law of indexation of the Spanish economy”which allows the use of a different index in place of a consumer price index for government contacts. However, this will affect the government pensions negatively. The labor ministry had earlier pointed out that the pensions should not increase on par with the inflation but with other relevant economic indicators.
In another austerity measure, King Juan Carlos of Spain expressed his willingness to hand over to the government a $ 27 million, 136 foot Yacht a gift he received 13 years ago. The 35 tonne aluminum Yacht, ‘Fortuna’ is moored off the island of Majorca, where the royal family has a summer palace. The gift was presented to the monarch as a gratitude for promoting ‘Majorca’ as a tourist destination.