So, the Institute for National Statistics in Spain (see: INE in English) has just announced that the Spanish economy has grown – for the first time in two years. The growth is actually minuscule at 0.1% (over the past three months) and is unfortunately 1.2% down – year on year. However, it is positive news and begs the question as to whether it points to a true end to the recession in Spain?
On a personal basis, I am not very confident about the recession in Spain ending in any meaningful way and I suspect that the 0.1% figure is something of a distortion because it covers the three month summer tourist season. This has seen spectacular growth over the past couple of years but is, I fear, a little illusory, at least in the long term. This is because tourism figures have been boosted by the problems in Northern Africa, which have resulted in tourists coming to Spain as a (justifiably) safe option for their holidays. This is not something that will last once the political situation in North Africa calms down.
Meanwhile, one of the obvious problems with the tourist industry is that its benefits are very short term for the Spanish population at large. It certainly provides very significant work but that work is extremely short lived and, for the average worker, provides only very basic (and poorly paid) work as waiters, cleaners etc.
Needless to say, the economy needs more depth than that provided by the summer tourist season – if it is to provide quality, full time employment for its citizens. This is critical – if the economy is to have any real chance of a successful recovery.
Certainly, on an anecdotal basis, I see no signs whatsoever of an economic recovery in my own general area. Shops and businesses are still closing with a horrifying regularity that is ‘complemented’ by the number of young (often highly qualified) Spaniards seeking work abroad. Indeed, my wife’s language academy is full of Spaniards learning English so that they can find meaningful work out of Spain. Here, jobs are ridiculously scarce and the few that are available are desperately poorly paid. As an illustration, a lawyer friend recently told me about a job that was available for a fully qualified lawyer with a minimum of five years’ working experience. The salary was 12,000 Euros a year…
Of course, the austerity measures have had a dreadful affect upon Spain. Infrastructure works have largely ceased and the salaries of state employees have been savaged, with some workers now earning almost 25% less than they were a few years ago, due to government cuts (national and local) to their income. Whilst these cuts may have been unavoidable, they have meant that a whole stream of normally ‘safe’ earners has had too radically curb their spending – and spending, unfortunately, drives an economy (to state the obvious).
Meanwhile, yesterday I was in a shopping mall in a town called Cullera (Valencia Province) with an authoritative commentator on Spain (Graham Hunt). There, it was frightening to see that virtually every shop outlet (there may have been 20-30) surrounding the main store was empty. This is not an uncommon occurrence and is hardly a sign that Spain is moving into recovery.
It is true to say that exports have surged and that this is good news. In truth, I suspect that Spanish production is probably similar to what it was in the past but that the producers have been forced to find export markets to replace the collapse of their internal market. Does this mean that Spain is actually producing more? Maybe – but enough to drive a genuine recovery? I doubt it.
Meanwhile, the domestic property market is still very much in the doldrums. Money is hard to borrow, repossessions are continuing and the Spanish banks are replete with land and untold numbers of properties, a proportion of which can only be described as toxic. The construction industry, of course, is moribund and unlikely to rebound for a long time (and never to the extent of 2005 – 2007), given the significant stock of already built properties. This is a genuine cause for alarm, as the construction industry was the powerhouse of the Spanish boom and it (and its ancillary industries) provided work for a significant proportion of the population. Indeed, in 2007 the construction industry, its ancillary businesses and overall affect may have accounted for something like 35% of GDP. That is a huge hole to fill.
Needless to say, Spain is also burdened by both significant private and public debt, with many town halls close to bankruptcy and the Spanish state struggling badly.
That said, one interesting aspect to this year has been the huge increase in foreigners buying property in Spain – both private and investors. Property prices have dropped by a mind boggling 50% – 65% (depending upon who you believe) and so there is no shortage of fine, bargain properties on the market. The ‘bottom pickers’ are out and, for the first time since 2007, buyers are actively starting to hoover up the best buys – knowing that any further drop is likely to be minimal.
In fact, for the first time since 2005, I feel able to state (with some confidence) that Spanish property is a good buy and yielding value for money (so long as the property concerned is legal, without potential liabilities, well located and soundly built). Clearly, the ‘market’ feels the same and now around one sixth of sales being made in Spain are to foreigners – although this statistic can also be used to illustrate the devastating drop in native buyers and it is they who will drive a genuine, widespread recovery.
All of the above may appear gloomy but I suspect that Spain is nearing or has reached the bottom of its economic downfall and that the end to the recession in Spain is near. The problem is that any recovery that will be felt by the population at large is likely to take several more years.
On the plus side, over the past few months I have met a number of foreigners from Northern Europe and the US who have been amazed by the stunning value for money available in Spain – in terms of the way of life on offer. This is undoubtedly true and few people would argue that you can live here extremely well if you have a secure modest income. The overheads of having a property here are minimal, eating out is astoundingly cheap, the climate is superb and outdoor activities multifarious and easy to do. Travelling through the country on its superb infrastructure is quick and easy, the culture is still (somehow) intact, physical security problem-free and the Spanish people as charming, kind and tolerant as ever.
So, there are two sides to Spain depending upon who you are.
As a Spaniard, life is pretty gloomy and will remain so for the short to mid-term with any suggestion that there is an end to the recession in Spain looked upon as supreme optimism or government spin.
However, as a foreigner seeking a holiday or a move to Spain, then matters are fine. Indeed, this is a superb time to come here and buy a property. You can easily and securely have a wonderful quality of life and find your costs have fallen and your way of life has improved radically. That is great but do spare a thought for your new compatriots, who will be suffering for some time to come…