![]() The Organisation for Economic Co-operation and Development (OECD) cited nine factors that propelled Spain’s property market. Lots of jobs were created, but the reclassification of land by town halls for building purposes caused corruption to flourish. A one percentage point rise in construction demand produced a multiplier effect of almost double that on the country’s overall output. The sector had a big knock-on impact on the rest of the economy. The number of housing starts in 2006 (865,561) was more than France, Germany, the UK and Italy combined (see Figure 3). The only question was when the slump would happen the global financial crisis was the trigger that hastened it. For many economists it was, to borrow the title of a novel by Gabriel García Márquez, a chronicle of a death foretold. The boom started during the government of the right-wing Popular Party (1996-2004) and continued under the Socialists. Moody’s ‘Misery Index’ (1) (1) The combination of the fiscal deficit and the unemployment rate.įor more than a decade, Spain’s political class was happy to encourage the phenomenal growth of the property sector without giving thought to the bubble that was clearly being created or what would take its place after it burst. Seasonally Adjusted Unemployment Rates (%)įigure 2. ![]() The dramatic rise in unemployment put Spain in first place in the ‘misery index’ of Moody’s, the credit rating agency (see Figure 2).įigure 1. According to José Manuel Campa, the Secretary of State for the Economy, the overall jobless rate will not return to its pre-crisis single figures rate until 2014 or 2015. The most worrying aspect is the youth unemployment rate (under 25’s) of 44%. In absolute terms, Spain has almost the same number of unemployed as France and Poland combined. The seasonally adjusted jobless rate reached a low of 7.9% in the second quarter of 2007 (1.76 million people) and then rose inexorably to close to 20% at the end of 2009, almost double the euro area rate (see Figure 1), while the fiscal balance over the same period moved from a surplus of 2.9% of GDP to a deficit of more than 10% and general government gross debt increased from 36.1% of GDP to 54%. Spain generated close to 12% of the Euro zone’s GDP in 2009, but it accounted for more than one-quarter of the zone’s unemployed. In boom times, Spain creates jobs at a faster pace than any other EU economy, but during a downturn they are destroyed at an equally brisk speed. At the end of 2009, however, more than 781,000 construction workers had lost their jobs, and there were an estimated 800,000 new properties destined for sale that had not been sold (including many held by banks that received them in lieu of loan repayments from developers) and an unknown number of second-hand properties. ![]() In 2007, the last year of ‘normal’ growth in Spain, investment in the construction sector accounted for 15.7% of GDP, compared with 9% in the US, Germany, France, the UK and Italy. The driving force was residential construction which at its peak accounted for 10% of GDP, compared with 6.5% of GDP in the US before its own housing market went under.Ī labour-intensive sector, construction created one in every five new jobs in Spain between 20. Not a cent of Spanish taxpayers’ money has been spent on bank bail-outs (CCM was rescued by using accumulated deposit guarantee funds). After growing by an average of 3.5% for 14 years (above the potential growth rate of close to 3%), the overheated economy was hard hit by the collapse of its over-sized property sector and the fallout from the global financial crisis, although only one of Spain’s banks –Caja Castilla-La Mancha (CCM), a tiny savings and loan institution– had to be rescued by the Bank of Spain (the central bank). ![]() The economy’s shrinkage last year (-3.6%) was only the third one in 50 years and by far the deepest (-0.2% in 1981 and -1.2% in 1993). Spain suffered its worst recession in 2009 since 1960, the starting point for the current data series. The economy needs to become more internationalisedthrough exports and direct investment abroad by its companies and banks in order to create jobs on a more sustainable basis andemployment of a higher quality. The collapse of this sector brutally exposed the shortcomings of the lopsided economic model and caused unemployment to skyrocket. The Spanish economy became too dependent on internal, as opposed to external, demand as the driver of growth, particularly the construction sector. ![]()
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