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Wednesday, October 30, 2013

Spain is winning the battle, but still faces the war

Spain's GDP grew 0.1% in the July-to-September period, just enough to show that Spain is officially out of recession. Yet, the country's economy is far from being out of the woods. Expect a rocky and uncertain recovery, with growth rates looking like an echocardiogram. Sustaining any type of stable growth is most difficult given the high levels of unemployment and declining domestic demand.
Spain recorded its first quarter of economic growth since 2011, indicating the country has exited its deep recession. However, the recovery is far from being set in stone. Unemployment remains the highest in the Eurozone and domestic demand is still contracting. A sustained recovery is unlikely until the underlying fundamentals improve.

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Spain's GDP grew 0.1% in the July-to-September period, after contracting for the previous nine quarters. This ever-so-small growth is just enough to show that Spain is officially out of recession. Yet, the country's economy is far from being out of the woods.

Indeed, Spain was one of the countries worst hit by the global economic crisis, with street riots and soaring unemployment. One small quarter of growth only adds a level of comfort. 

Hgher exports and a boost from the tourist industry supported the growth. While good news is always welcome, however it is important to acknowledge that domestic demand is still contracting, which limits the likelihood of a strong and sustained recovery. 

Spain's economy has been strained since its 2008 real estate crisis. Over the past 5 years, the country has suffered from Europe's highest level of unemployment, at 26%. Its population has taken to the streets, protesting the government’s austerity cuts. Meanwhile, Spain’s banks required bailouts from other European governments to survive, after suffering hundreds of billions of Euros in bad loans. One quarter of minuscule growth certain does not lessen these strains. 



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So what’s next? 

Expect a rocky and uncertain recovery, with growth rates looking like an echocardiogram, with ups and downs.  Sustaining any type of stable growth, let alone strong growth, is most difficult with such a high level of unemployment. Moreover, unlike in the US and the UK, there are still no solid indications that that the property markets are in a sustained recovery. A rebound in the property market is one of the key building blocks in the of a sustained economic recovery. 

Solid growth will be the byproduct of improved confidence, which will help drive domestic demand. Over the next quarters, unemployment rates, property values, and bank’s balance sheets will be closely watched for improvement and will remain important signposts to monitor. Further, the weak, fragile, and uneven economic recovery in the Eurozone also needs to pick up steam to keep up Spain’s exports. Spain has won a battle, but the war is far from being over.
 

About the author: 
Steve Picarillo is an internationally known and respected financial executive, analyst and author. Steve has spent most of his career on “Wall Street” as a lead financial analyst covering global financial institutions for international rating agencies. Mr. Picarillo is currently using his vast knowledge of business, corporate finance, operations and communications as a consultant to large financial institutions, retailers and small to mid-sized business. In addition to being a expert on global banking, Steve is a branding expert, a student of the global economic environment, and a motivational speaker.

Steve publishes several blogs with topics that include discussions on the economic environment and operating a business in this still uncertain economic environment

 
 
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