The Spanish economy 2011, Spanish regional debt and the Spanish housing market

SPANISH HOUSING MARKET

Well, the bad news seems to keep coming for the Spanish economy in 2011 with confirmation of what I have been writing about over the past few months.

Firstly, Spanish regional debt appears to be as dangerously out of control as national Spanish finances were before the Spanish national government of Zapatero imposed austerity measures.  Indeed, a recent article in El Pais states that unpaid bills by local and regional governments in Spain now stand at a mind boggling 50 billion Euros.  This is 5% of GDP and, worryingly, ‘four times more than two years ago’.

Heaven help you if you do work for a local or regional government in Spain!  As El Pais points out, businesses undertaking construction works are paid by the local and regional governments of Spain on average some 238 days after their invoices have been issued.  Meanwhile, in some regions of Spain pharmaceutical firms have to wait even longer.

Clearly, the local and regional governments of Spain are (or at least have been) spending irrespective of the pleas of Spanish central government.  Certainly, for the size of the unpaid bills to have risen by a factor of four in last two years is shocking – although this probably has much to do with a significant diminution in tax receipts due to the economic crisis.

Either way, one of the flaws of Spain is coming to light – which is the lack of authority that Spanish central government has over the appropriately named autonomous regions of Spain (there are 17 and 2 autonomous cities).

Secondly, gloom still surrounds the Spanish property market despite the occasional (and rather transparent) PR spin about its supposed recovery.  Home sales in Spain for June were 26% down from last year (and 60% less than they were in 2007).   Meanwhile, sales are down 11% year on year compared to 2010.  All of this indicates that sales this year may be the lowest since the Spanish property crash began.  This will be a devastating blow to the Spanish economy – which for so long had depended upon the Spanish property market for growth.

Needless to say, many Spanish banks are deeply troubled.  Their lunatic investments in the Spanish housing market have soured and there is little chance of them obtaining a return on their investment for, perhaps, a generation.  Indeed, the potential losses are too appalling for words and I doubt anyone wants to really know the truth about the balance sheets of the Cajas (Spanish savings banks).

I hate to say ‘I told you so’ but I have long predicted that the Spanish economy in 2011 was going to be in trouble and last year I stated that I expected the Spanish property market not to recover – indeed, I suggested that Spanish property prices would drop a further 10%.

Frankly, I think that we shall be lucky to see the Spanish housing market stabilise next year and I am prepared for it to fall a further 5% across the board.

Of course, as a buyer of Spanish property these are halcyon days in which to buy property in Spain.  Almost certainly, you can pick up properties so reduced in price that any further drop (not completely catastrophic) will barely dent the value of your new property.

However, for the rest of the Spanish population matters are not too bright and the worst nightmares of many Spaniards may be hearing someone like Jan Randolph, director of sovereign risk at IHS Global Insight stating that Spain is the ‘big weak link’ in the Eurozone.  I suspect that almost everyone in Spain realizes that (secretly or otherwise) – along with the mandarins in the EU.

The problem, of course, is how will Spain extract itself from its economic problems and revitalize its failing economy?

Frankly, I have no idea and my worry is that the patience of many Spaniards is running out.  This is well illustrated by the Indignado movement in Spain which shows no sign of disappearing and every sign of extensive (and growing) support from a cross section of Spaniards.

Maybe everything will change after the General Election in Spain on the 20th November of this year.  However, I suspect not and fear that this tragic recession has a long way to go before any noticeable improvement will be seen for the Spanish economy – with Spanish regional debt due to become an increasingly headline matter…

 Nick Snelling – Culture Spain

 FURTHER RELEVANT INFORMATION

Are the Autonomous Regions of Spain bankrupt?

 Spanish economy: problems, problems…

The Spanish property crash is not over yet

Spanish economy – unemployment up again

The prospects for the Spanish economy 2011 look gloomy

The Spanish property crash and the Banks

Banks in Spain – how safe are they?