Spanish economy shrinks more than estimated

Spanish economy shrinks more than estimated

08-15-2009 13:06

In the second quarter, the Spanish economy shrank more than estimated, which indicates that Spain’s economy, Europe’s former motor of economic expansion, has not followed the French and German example. Spain has also become less competitive regarding labor costs in comparison with other European nations.

GDP declined 1%

Instituto Nacional de Estadística, Spain’s national institute of statistics, reported today that its GDP decreased 1% in comparison with the decline of 1.9% in the first quarter, while from a year earlier it contracted 4.1%. Banco de España, the Spanish national bank, projected on July 30 that the nation’s economy would decline 0.9% in the second quarter and 4% in comparison with last year.

Lingering behind

The improvement in Spain lingers behind that of other Eurozone nations, while yesterday’s figures demonstrated that the German and French economy grew in the second quarter. Spain not only suffers from the highest unemployment rate in Europe at 18%, it also struggles with the end of an internal housing bubble. For that reason, Spain utilizes impetus measures, which value 2.3% of the gross domestic product, in order to shore the economy as it provides employment to construction workers on public building activities in Spain. Citigroup economist Giada Giani commented: “Surely we will see Spain continue to lag behind the other European nations, up to the end of next year.”

Losing competitiveness

Resumed growth in France and Germany was boosted by exports, which perhaps will not support Spain’s economy. The forecast by the second-largest German bank, Commerzbank AG, was build on employments costs, which proved that Spain has become 10% more expensive in comparison with the other Eurozone nations since the establishment of the European common currency.

Spanish economy shrinks

Giani commented: “Spain is not able to benefit from the positive outcomes from a potential improvement in global trade, due to the fact that Spain suffers from a competitive problem in relation to the main Eurozone nations.” The Spanish economy will contract 0.9% in 2010 despite additional measures in 2010 and Europe’s most extensive impetus plan, according to Spain’s government. Spain would post the weakest economic results of the 30 Organisation for Economic Co-operation and Development (OECD) members after Ireland and Hungary. The Eurozone will stagnate in 2010, according to the estimation by the OECD on June 24.

UK GDP declined 0.8%

Martin van Vliet, an economist at the International Netherlands Group (ING), stated: “Discrepancy in the Eurozone is currently a risk, particularly if the member nations begin to recover.” Several economic studies, executed during the last two years, emphasized that wealth moves across Europe’s major economies. The UK gross domestic product declined 0.8% in the second quarter, as the French and German economies grew, while the Austrian, Dutch, Hungarian and Romanian economies slumped.

Doubled unemployment

Van Vliet added: “The Spanish economy now suffers from the years of growth as they profited from interest rates that were too low. Now the boom has collapsed and Spain would choose lower interest rates for a prolonged time.” The Spanish economy also suffers from the end of a debt-fueled building bubble, which resulted in approximately 1 million new houses without an owner. Unemployment among building staff is the main reason for the doubled unemployment in Spain. Eurostat data proved that approximately 50% of last year’s rise of unemployment in Europe was caused by Spanish unemployment.