The relative quiet over the summer regarding the imminent demise of Spain as an economic entity has ended. That can only mean that Edward Hugh is back from holidays. The last paragraph of his recent entry, 'Has Spanish Unemployment Really Been Falling Recently?':So the fact of the matter is, that the latest good data we have for Spain are the June unemployment data (supplied to Eurostat based on the EPA) which showed 4.186 million out of work, and an unemployment rate of 18.1%. And unemployment is rising every month, and that is the sorry and woeful tale of Spanish unemployment at the moment. That and my forecast that, if nothing is done to stop the runaway contraction, unemployment could be up and hitting the 30% mark come December 2010. 25% before Easter 2010 is now a done deal as far as I am concerned, and we will probably break the 20% psychological threshold in October or November of this year.
We respectfully suggest that Mr. Hugh is misguided in his analysis, if not actually addicted to the benzedrene of crisis histrionics, and will propose a contrasting scenario in which Spanish unemployment figures stabilize as growth remains negative.
In previous IBEX Salad posts, we (knowing perfectly well how the game is played - underlining the difference between being 'based' and actually 'living' in a place - but in search of some at least tangential hard-ish evidence) questioned the legitimacy of these statistics on the basis of a comparison of debtor default and unemployment rates in Spain and the U.S., a quick and incredulous study of unemployment numbers for Málaga province and a report on the possibility that the underground economy in Spain was actually growing over the course of the crisis.
Now we are going to ask the reader to explain to us how the only two European countries with unemployment rates comparable to Spain's, Latvia and Estonia, will have required that their economies shrink by upwards of 10% in 2009 to attain rates in the high teens, whilst Spain will accomplish the same UR figures with a 'mere' 3.2% diminution of economic activity. That's alot of slack that has to explained somewhere.
The answer comes from the real world of Spanish labour politics in which the government (lacking the balls to ever tell anyone that Spain is not paradise) has always been the willing mark of last resort - the plankton at the end of the food chain feeding everybody who can lay claim to having a pulse. This may be changing due to the serious pressures on the social security system and their attendant effects on the country's budgetary deficit.
1). For the first time ever, planted rumours (as effective as putting up a radar warning at the entrance to a town) are circulating prominently amongst olive growers that the Ministry of Labour will be out in force this coming harvest making sure that members of the cuadrillas are all registered with Social Security. This writer's (and everyone else's) experience has been that you cannot put a crew of locals together if you insist that they sign up with SS - because they are all using the harvest to top up their unemployment insurance;
2). Evidence that the Ministry is conducting very frequent spot inspections of tourist establishments on the Costa del Sol. The urgency of the matter is suggested by the fact that these are taking place both day and night. Spanish functionaries working nights? Strange times indeed;
3). The bizarre scene witnessed by the writer in an unappetizing bar in a dusty, nondescript and totally lacking in appeal town in northern Granada province, in which a Ministry official showed up, accompanied by two civil guards, to check the papers of everyone in the kitchen. Hauled out by his ear from the washroom was the boyfriend of the owner's daughter.
We think that the process by which further economic distress, which we consider nearly inevitable, might not be reflected in similarly worsening unemployment figures is fairly evident - the employers of the cheats will get strapped with really impressive fines if they continue to pay en negro and thus avoid compulsory SS contributions. And if the possibility of 10% national budget deficit in 2009 does not provide the motive to abolish this national pastime, nothing ever will.
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8 Comments:
So. This is it? (the bottom). True my romanian friend has recently gotten 3 new part-time jobs @ restaurants and private homes, on top of the former 2 homes she was initially cleaning. She's planning to rent a nicer appartment when she comes back from holiday in September.
she's now renting a 2bedroom appt for 200+ eur/mo and would upgrade to somewhere about 400 eur/mo
If it is the bottom, it might be a long lasting one. On the other hand, most people overshot big time in their reactions, so there might be some upside to be had there.
Where's that? Barcelona?
Thanks for the funny post, Charles.
But humour changes a lot from the first paragraph to the last.
And lately, our dear Edward has been talking about Italianization of Spain, too.
He is not on the ground in Andazulia, as teleñecos used to say, but not all Spain is made by jornaleros, criadas and interinas.
Something is very rotten here and it will surface, sooner or later.
In USA, Bernanke is the winner again, with congratulations by Krugman. But I prefer Stephen Roach position in FT.
We all want, it seems, to go back to business as two years ago, but something got broken and we'll need some years to arrive to another way of making business, Bernanke or someone else.
And after reading in the Bible of Spain that 63% of spaniards are earning 1100 euros gross/moth salary, you don't need to be a futurologist.
Thanks and keep on,
JL
PS: I thought that Edward was too busy on Facebook, and missed him. But maybe, you are right, he just was on vacation.
Sorry, don't you read Afoe?
JL,
The curious thing is that untenable economic prospects have minimal political consequences here in paradise. Doesn't look like it bothers the mileuristas.
Esto es lo que hay.
30% UR, on the other hand, is just the evil twin of Dow 36,000. Pitch out a number to keep that bull market in bad news rolling.
1st Anon here: that's about 50km south of barcelona
Charles,
You always the (relative) optimist. I have to admit the bull market in bad news as you call has got a bit too much. But the reality is:
(1) month after month government finances continue to deteriorate on a twelve month rolling basis, suggesting no bottoming out yet;
(2) In terms of the World Bank's Doing Business survey Spain has the most rigid labour market and most red tape associated with starting a business in the OECD by a wide margin. I take this to be a convincing reason explaining the wide unemployment differentials with other OECD countries.
(3) Finally, I just started a job working on electricity, so I cannot resist it: electricity demand is a great indicator of economic activity (although of course it is influenced by external factors such as weather), and YoY figures still continue to show falls in demand. Demand so far in 2009 is over 5% lower than during the same period in 2008.
I am not a great fan of people making guesses and trying to pass them off as reasonable estimates. The good thing is we don't have to rely on them - the summer is nearly over and we should start getting the actual figures pretty soon.
b,
I've got no illusions about how bad the economy is. But the only way to get from -3% gdp growth to 18% unemployment is by assuming that being 'unemployed' is to some degree an economic decision benefiting (at least relatively) both workers and their bosses. The added extra to the theory is that it also produces Spain's disastrous national accounts by passing the savings directly on to the state.
That's where all the todo vale chickens come home to roost.
To the degree that all this is problematic because of the euro, an interesting exercise would be to imagine the consequences of accession to the common currency during a bust, and not in the early moments of a bubble.
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