01 May 2013

Spain's Pain Getting Worse

Badly battered by the all-enveloping eurozone crisis, Spain's economy has shrunk, again. In the January-March 2013 quarter, the economy contracted by -0.5%, as against contraction by -2% in the corresponding quarter last year. This means the country’s economy has contracted for seven consecutive quarter now.
The government in Madrid believes that growth will falter again this year, as it announced that the economy will contract by -1.3% in this financial year. Ever since the euro crisis began in 2008, Spain, which witnessed its massive real estate bubble burst, has struggled to stay afloat, especially in the face of mounting debts and rising unemployment.

Rising unemployment
Rising unemployment is eating into domestic demand, thus setting in motion a vicious cycle of low demand-falling revenues-low generation of jobs-rising unemployment, which, in turn, meant that fewer people would have income that would help them buy stuff.
In other words, unemployment rates typically move in a cyclical way as they are largely related to business cycle, especially in the short and near medium long term. In addition to business cycles, government policy (especially labour policy), population trends, and to some extent, global economic environment (especially in case of export-oriented economies) determine the rates and levels of unemployment in the long run.
According to Eurostat, among the eurozone member states, Spain has the second highest unemployment rate, at 26.6%, just behind another badly bruised eurozone member, Greece, where the unemployment rate is hovering around 27.2%.
In fact, if Spain’s National Statistics Office is to be believed then it already has the highest unemployment rate at 27.2% of the workforce.
To make matters worse, the youth unemployment rates are even worse, with over 55% of young Spaniards not able to find work.
It is unlikely that Spain will come out of recession anytime soon. Till it emerges out of the economic doldrums, the suffering of the Spaniards will continue.
Stories of suffering
The BBC website carried a collection of stories of ordinary Spanish folks hit hard by a triple whammy caused by the serious downturn in their country’s economy: huge debts to pay, lack of jobs, and thus lack of income. I share the story of one such family:
Angel Moran is 53 and has been out of work now for five years. His wife, Conchi, is 48 and has been unemployed for four. Their home is one of 1.9 million in Spain in which no-one has a job, according to the latest unemployment figures.
They receive state benefits of 426 euros (£358) a month and rely on food handouts from the Red Cross.
"Our gas has been cut off and we can hardly pay the water. After paying the rent, there's nothing left for food."
Their daughter Noelia is 26 and she is also unemployed. Her 25-year-old boyfriend also lives in the house and he is also unemployed.
"I can't get my own place with my boyfriend," she says. "I can't afford to have kids. And you just have to think about every cent you spend."
Read more of such stories here.

1 comment:

Venkat Singhal said...

It's a grim situation indeed in Spain. And things don't promise to get any better in the times to come.