Dec 262011
 
Spain, 2012 and future prospects

MADRID LOOKING FABULOUS – A CITY OF CULTURE TO RIVAL THE BEST IN THE WORLD!

So, 2011 gradually ebbs away – a year that many people in Spain will be pleased to see disappear, hoping that 2012 will herald better times ahead.  Unfortunately, I fear that may not be the case and there are compelling arguments to suggest that 2012 may be more difficult and challenging for Spain than 2011.

So, how does one round up 2011?

Well, I think reactions to Spain in 2011 depend very much upon who you are, of course, as the feelings of a holidaymaker to Spain will be very different from someone living in Spain trying to sell their house or a Spaniard recently out of work.

Certainly, for the Spanish, as a whole, 2011 has been notable for a final recognition that the economic crisis in Spain is for real – and here for the foreseeable future.  This reckoning has taken some considerable time to enter the consciousness of the Spanish who, for a long time after 2007, seemed genuinely to believe that the economic crisis in Spain was just a ‘blip’ in Spain’s upward progress, rather than the Tsunami that it has turned out to be.

However, this year has dispelled any illusions, not least through raw and unavoidable facts such as the 23% unemployment rate in Spain and the fact that 49% of 18 – 24 year olds have no work – the tragedy of which touches everyone, in every strata of Spanish society.  Meanwhile, throughout the year the bank of Spain has been rescuing the appallingly badly run Cajas (savings banks) which have, notoriously, provided their failed directors with fabulous pensions and compensatory payments.

Banking scandal Spain          The Spanish economy – how bankrupt is Spain

The cause of Spain’s economic crisis has been the crash of the Spanish construction industry.  In 2007, including peripheral industries, the construction industry in Spain may have accounted for as much as 30% (or more) of Spain’s GDP and yet by this year (2011) cement use in Spain had fallen to its lowest level for 27 years – indicating that the construction industry in Spain has, more or less, ceased to exist.

If this was not bad enough there may be as many as 3 million properties for sale in Spain (no-one really knows!) of which some 1 million are new builds.  This massive excess in supply will take a generation to clear with some Spanish building projects so ill thought out and defective that they are (and always will be), to all intents and purposes, probably worthless…

The Spanish, of course, took their revenge on the incompetent socialist party of Spain (PSOE) in two elections in Spain in 2011 – the regional and local elections at the beginning of the year and the Spanish national elections in November.  Utterly discredited for their astonishingly incompetent management of the Spanish economy, the socialist party of Spain were resoundingly defeated in all the elections and replaced by the Spanish conservative party (the PP) led by Mariano Rajoy.

However, the new conservative Spanish government is unlikely to have any political ‘honeymoon’.  Indeed, it is hard to know how Mariano Rajoy can regenerate the Spanish economy in the short term as he is faced with: an economy with a probable 30% GDP hole (the Spanish construction industry), high unemployment, low income from taxes, falling house prices (down 35-50% on 2007 values), high debts and banks that are wobbling.  Further cuts of government services are inevitable, of course, but these are unlikely to actually revitalise the economy and may lead to social unrest.

Certainly, one of the most notable aspects to 2011 has been the lack of violent social unrest despite a population that has shown signs of being restive.  Indeed, instead of riots, Spain saw the emergence of the remarkable Indignado Movement (15M).  Indignado translates as ‘outraged’ and this was, understandably how many Spaniards (of all ages) felt as they filled the squares in many towns and cities in Spain during the year – albeit in a uniquely peaceful manner.

Interestingly, the Indignado Movement in Spain was most verbose about the ‘system’ in Spain failing – not democracy but the way that democracy is run here.  By this, they meant that there was little real political choice as governments in Spain, are effectively always drawn from a two party system (the socialist PSOE party and the conservative PP party).  Furthermore, the Indignado Movement was furious with the corruption endemic in politics in Spain, leading to frequent abuses of power.

Corruption in Spain, still a problem          Spanish conservatives win general election

Of course, the Indignado Movement has spread with ‘sister’ movements across America (Occupy Wall Street) and in London.  Unfortunately, whilst some of the statements of the Indignado Movement often made a good deal of sense and had considerable support, the Indignados had no realistic solutions to Spain’s problems.  Indeed, the Indignado Movement is inchoate as an organisation and has had no perceivable impact upon ‘real life’ politics in Spain (they did not contest the Spanish national elections).

To add to the economic woe of Spain, the town halls in Spain are also in meltdown.  This has been a badly kept secret for some time but this year the Pandora’s Box of local authority debt in Spain has been opened up – to release some scary facts.  Indeed, some town halls in Spain are so broke that they have been unable to pay their staff for months with suppliers of services and goods waiting, sometimes, for over a year to be paid.  In some cases, local authority construction and infrastructure works have been left half completed with little hope of completion for years to come.  Meanwhile, the debt to income ratios of some town halls in Spain is quite simply breath-taking with any significant reduction to these debts likely to take a generation.

So, by anyone’s standards these are hard times for the Spanish and, in truth, the ‘hard times’ are far from over with the threat of collapsing banks and a Eurozone meltdown a Damocles’ sword waiting to make matters worse.

A saving grace for Spain has been the tourist industry in Spain which saw an excellent year (an 8.4% increase in tourist spending).  Unfortunately, this was not due to Spain offering something greater/better/more exceptional than usual but through the wise desire of holidaymakers to choose safe Spain as opposed to Greece or the deeply troubled countries of North Africa.  Nonetheless, this boom was welcome but should not be taken for granted as the North African countries fight to get tourists to return.

Meanwhile for foreigners in Spain life here has been defined mainly by whether they have to earn an income (incredibly hard) and or sell their property (almost impossible).  Either of these two problems has been devastating and those who have sold their properties in Spain have had to do so at heavily discounted prices – often leaving them with a greatly reduced equity for their next purchase.  If the intention had been to return to Northern Europe then this will have had significant, and obvious, consequences.

However, for those with a secure pension and no desire to sell their properties in Spain then the year will have been like any other.  The climate has not changed and is wonderful, it is cheap to eat and drink out and the quality of life here is very fine.

Perhaps more perplexing has been the problem for people thinking of moving to Spain (the subject of a book of mine published earlier this year).  The question has been whether it is the right time to buy (the bottom of the market?) and, more importantly, whether the Eurozone would crash and Spain return to the Peseta?

Well, the evidence seems to suggest that there has been a marked rise in foreign buyers coming to Spain to buy property, particularly from Northern Europe (excluding the British).  Certainly, there are countless bargain properties in Spain and a clever buyer can probably insulate himself from any further drop in the housing market by picking carefully and driving a hard bargain.

However, I suspect that the Spanish property market will fall again in 2012, possibly by between 5 – 10% – and that is not taking into account any Eurozone crash or return to the Peseta.  So, it is a time for caution, if you are a potential buyer.

Spanish property Market       Bargain properties in Spain

That said, Spain still has a terrific amount to offer both tourists and those seeking to live in Spain permanently.  The country has fantastic beaches, great mountains, endless outdoor activities, modern shopping, beautiful towns and cities and a well-developed infrastructure to deal with foreign tourists and provide them with a superb holiday.  The culture of Spain is as interesting as ever, the museums excellent and travel through Spain fun and stimulating.  It is a great country with an accessible language and a nuclear society that is still functioning well, amidst a kindly and tolerant people – who deserve better than their lousy political leaders and the awful year that they have just experienced…

Nick Snelling

FURTHER RELEVANT ARTICLES CONCERNING SPAIN IN 2011

Book on: How to Buy Spanish Property and Move to Spain – Safely!

The Spanish economy – how bankrupt is Spain

Corruption in Spain, still a problem

Demonstrations in Spain what the Indignados are saying

Spanish property Market

Bargain properties in Spain

Banking scandal Spain

The Spanish economy and debt in Spain – the town halls are in trouble

Spanish conservatives win general election

 

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  3 Responses to “Spain 2011 and predictions for Spain 2012 – a summary!”

  1. Hello Nick,
    An excellent article, well-written and well-thought out. Also nce to finish on a positive, with Spain still able to offer much to both the tourist and the overseas “lifestyle” property buyer who is buying for the right reason.
    I would like to ask your permission to reprodue this in my own blog (with credit to you of course).
    All the bet for 2012
    Barry

  2. Barry

    Of course, you can – please just make sure there is a link back to Culture Spain. Thank you for your comments and have agreat New Year.

  3. Much too hard on ZP. He will be seen as a golden age in two years with Rajoy at the helm

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