The brakes are coming on so hard that you can virtually hear the screeching all the way from the South Coast. The Spanish economy, for so long a superstar of the EU, is skidding to a near halt.
In the second quarter of last year, the economy expanded by a full percentage point. It has grown by more than three percentage points ever year for five years, but now it is ending.
Initial estimates suggest Spain expanded by 0.3 per cent in the first quarter of 2008.
The Spanish housing market, after thwarting predictions of gloom for so long, is in trouble. This is especially worrying as Spain’s economic boom has partially been propelled by construction.
Spain is also suffering from the strong euro. Its current account deficit is massive – around 8 per cent of GDP last year.
But will Spain slow all the way to zero, like Italy appears to be doing, or merely stare recession in the eye, but avoid it?
Capital Economics had this to say: “We expect GDP growth to slow from 3.8 per cent to around 1.7 per cent this year and for activity to weaken further in 2009. What’s more, there is a growing chance that Spain could slip into a recession.”
Mind you, the Baltic states seem to be even worse off. This is what Capital Economics says about them: “Events of the past week have blown any hopes for a soft landing in the Baltics to pieces. Data released this morning showed that the Estonian economy contracted by a massive 1.9 per cent in the first quarter of this year. Meanwhile, the Latvian economy appears to be shrinking at a similar pace. With inflation set to rise further over the coming months, the region will remain in a tail spin for some time to come.”
Thank goodness for the Germans.
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