«I read this publication, what do you think?
Greetings:
The crisis of the Spanish economy will be longer, but less deep than the one suffered in 1993, estimates the research department of La Caixa, which calculates the average fall in Gross Domestic Product at 1.3% this year and forecasts that the unemployment rate could reach 16% in the final stretch of the year. The experts of this entity consider that the number of unemployed will slightly exceed 3.7 million at the beginning of 2010, without reaching the four million mark.
Social coverage and measures to boost the economy will push the public deficit up to 5.5% of GDP in the current fiscal year. And the upturn will be gradual, because in 2010 the increase in GDP will be limited to 11 Q3GDP on average for the year. In conclusion, the acute phase of the crisis will last for five to six quarters, starting in the summer of 2008.
Jordi Gual, head of the savings bank's analysis department, insisted, during the presentation of these projections, on the need to combat excessive pessimism. «We are facing a recession, not a depression,» he said, going on to explain that an economy has its own mechanisms of ‘natural adjustment’ that both puncture the excess of expansion and encourage activity in times of contraction. For this reason, together with the factors that converge in the generation of the economic crisis in Spain - global financial crisis, generalised international recession, adjustment of the real estate sector, high levels of household and corporate debt - he identified the mechanisms that will play in favour of recovery.
If the price of oil falls, as seems likely, from an average of 90 dollars a barrel in 2008 to an average of 60 dollars this year, this factor will allow the fall in gross domestic product to be half a percentage point lower. The reduction in interest rates in the euro zone, which the research department of La Caixa estimates at half a point at next Thursday's meeting and another half a point at the ECB's next monthly meeting, will have an impact on the mortgage Euribor, and will help to reduce the cost of buying a home in the first year - including tax deductions - from 37% of household disposable income to 25%. Inflation will fall from an average of 4.1% in 2008 to 1.2% in the current year.»
In all likelihood, the text is taken from the presentation of the Monthly Economic Report of La Caixa whose news in La Vanguardia you can reread.
I will say that in general I find the text excessively optimistic and that I would therefore be delighted if they were right in their predictions and I were the pessimist who was wrong. I would like nothing better, of course. And this excessive optimism is understandable and can be perfectly explained by its banking origin: the Research Department of La Caixa. Nevertheless, I agree with them on some points, but let's start at the beginning:
In my opinion, the text confuses the Spanish crisis with the global crisis, and at present they cannot be dissociated in any way. The global crisis is so serious that neither the acceptable state nor the shallowness of the crisis by country matters little, with the exception of the emerging countries to some extent. The credit crunch, the energy crisis (in short, the multi-crisis) drags along with it all those countries or areas that enjoy a better local and/or temporary situation. Therefore, supposing that it is reasonable to think that «The crisis in the Spanish economy will be longer, but less deep than in 1993.«The global tsunami will also sink Spain below the depth of its 1993 crisis, which I would place perhaps a year earlier, and probably prolong it well beyond what happened in those years.
As for the unemployment figure, it is a simple dance of local numbers which, as we have already said, will matter little as soon as the world, globally, emerges from the murky depths into which we are plunging. But it seems to me that this 16% can be exceeded by at least two more points with chilling ease. As for the public deficit, it will also depend on the great volatility we may experience in the oil/gas price, but I would probably correct that figure upwards as well. Regarding GDP, growing 1% or below, will be a matter of pure macroeconomic statistics that will only serve to keep some distinguishing between technical recession and non-recession in the midst of depression, something that is vital for the recovery of confidence and optimistic sentiment so necessary for banking. According to the report: «The 5 or 6 quarters that started last summer would therefore last until the last quarter of 2009 as acute phase of the crisis«. But while it is possible that we may see the worst over the next 12 months, I would be cautious to think of the whole of 2010 as a year of severe macroeconomic crisis. From then on, the depression would continue but with perhaps alternating between periods such as those 8 or 10 quarters and some quarters of mild recovery, as happened in the 1930s.
Regarding the recessionary and not depressive opinion of Jordi Gual, chief economist of La Caixa and PhD in Economics from the University of California (Berkeley), with all my respect and sincere admiration, I am afraid he is wrong. We are not facing a one-off recession but a full-blown depression, with its possible known (Great Depression) or probable unknown (without previous references) phases. However, I agree that the economy has its own natural adjustments to weigh up both the excesses of prosperity and to bail out when the water reaches the eyes (above the neck and nose). And especially this phenomenon has occurred in recent years, when we see how globalisation spreads viruses such as subprime, but also how it can amplify and globalise the anti-depressive effects that may emerge in the coming semesters in emerging countries.
Obviously, tax and rate reductions are a condition for the sine qua non to survive this multi-crisis any longer, and a moderation in the oil price to levels of 60 $ will make the difference between life and death for the sick. But it seems to be clear to the producing countries that, like God, they must squeeze but not choke, for if they overdo it they will starve the very demand. Of course, inflation will already be at rock bottom and we may even see it periodically go negative in the purest deflationary style.
To conclude, I would like to make a final reflection. Notice that in this article and every day in more and more opinions and statements, long-term solutions, sustainable solutions or Solutions in capital letters are being completely neglected. And the focus is on short-term survival, the bread for today. We talk about reducing rates to zero so that debt can circulate and revive, about oil at levels low enough to continue burning it massively, about a longed-for inflation that will pull us out of the clutches of depressive deflation, etc... And I am not saying that this is not the right thing to do now, since we are not in a position to improve the world we left behind a year and a half ago, but rather to seek survival. When we have achieved this, we will talk about sustainable economic policies, the re-founding of capitalism (which we must begin to outline and apply in an incipient way), alternative energies and expansionist models, Austrian or otherwise. But now we just have to try with all our might to keep Darwin away from us in the coming years. That's how bad we are, in spite of all the brainy, eminent and biased reports from a banking sector whose future depends on the recovery of confidence. Perhaps the bad thing would not be for readers to believe it, but for the authors themselves to do so.