As you know, there are many spots across the globe right now where it all looks a bit dodgy. But one of the economies that seems to be most in danger of a sudden and abrupt slowdown, maybe recession, is Spain.
As for the Spanish property market, predictions of gloom have been doing the rounds well before talk of a sub-prime crisis.
Spain’s problem is this. It’s been too successful. Growth has been topping 4 per cent per year and house prices have been soaring, but then so too has the balance of payments deficit, which as a percentage of GDP is much worse even than in the US. In fact the deficit on the US current account is 5.7 per cent of GDP, but the Spanish deficit is 9 per cent. To put that in context, the UK’s deficit is running at 3.2 per cent of GDP.
In Spain, debt is high too, according to figures recently published by the National Institute of Economics and Social Research, Spain’s household debt to income ratio is 1.01. Okay, it’s even worse than that in Japan, the UK and US, but then again it’s much lower in France, Germany and Italy, and it seems clear that Spanish consumers are decidedly overstretched.
And then, yesterday, the latest official figures were out. Quarter on quarter growth is down to 0.7 per cent, compared to 0.9 per cent last quarter and 1 per cent the quarter before that.
But more to the point, in the quarter just gone, government spending shot up and accounted for 0.5 per cent of that 0.7 per cent rise.
The Spanish property market has seen house price inflation fall quite rapidly, and many fear falls in prices are a real possibility soon.
Jennifer McKeown, European Economist at Capital Economics said, “Spanish GDP growth is set to slow relatively sharply, to around 2.5% next year from 3.8% or thereabouts in 2007. While this would leave the economy far from recession, the risks of a harder landing are rising.”
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