Pain in Spain - on the brink of depression
In our introductory AS macroeconomics we have discussed the differences between a cyclical recession and a depression. Much depends on the scale of the contraction in real national output from peak to trough of the cycle. This article from the Telegraph looks at a dire outlook for the Spanish economy which - not long ago - was one of the fastest growing countries in the European Union with a rising relative per capita income.
Quoting a report from Madrid research group RR de Acuña & Asociados, the peak to trough loss of GDP is likely to be more than 11%. “The group said Spain’s unemployment will peak at around 25pc, comparable to the worst chapter of the Great Depression......The construction sector will shrink from 18pc of GDP at the peak of the boom to around 5pc, making it unlikely that there will be any significant recovery before 2012. Even then growth will be “slow, weak, and fragile”.
A huge rise in the Spanish government’s budget deficit has left them little wriggle room for a fresh fiscal stimulus.
Spain and Ireland are frequently quoted as two EU countries whose property bubbles have been well and truly smashed with huge macroeconomic consequences. The slump in property represents a very large internal demand-side shock for a country heavily dependent on construction and also tourism for value-added measures of GDP.
Olive Oil Producers Suffer from Falling Prices
For the olive oil growers of Spain falling prices are threatening their very existence. They claim that the supermarkets - who sell 9 out of every 10 bottles - have used their market muscle to drive down the retail price and the growers are barely able to justify continuing production. This is a good short video on the workings of the price mechanism.
Deflation in the European Economy
Yesterday we learned that France and Germany were making tentative steps out of recession with 0.3% increases in real GDP in both countries during the second quarter (April through to June). Today the latest consumer price data came out for the Euro Zone and they show that the single currency area is now firmly in the grip of price deflation.
The average annual rate of inflation for the sixteen nations that are participating in the single currency was -0.7% in July 20092, down from -0.1% in June. A year earlier the rate was 4.0%.
For the EU as a whole there remains wide variations in the rate of inflation. Deflation is happening in Ireland (-2.6%), Belgium (-1.7%) and Luxembourg (-1.5%), whereas CPI inflation is relatively high in Romania (5.0%), Hungary (4.9%) and Poland (4.5%).
The latest CPI inflation data for the UK was 1.8% in June - a tad below the inflation target of 2.0%.
Inflation in the Euro Zone is likely to remain low in the near-term:
1/ There is a growing margin of spare capacity in the EU economy with most countries fighting recession and operating with a large negative output gap
2/ The recession is having a dampening effect on wage pressures
3/ A stronger Euro against the US dollar is keeping a lid on the cost of rising international commodity prices
4/ Manufacturers and retailers have lost pricing power because of the economic downturn
Pain in Spain
Spanish unemployment has more than doubled in the last year and is now surging above the 4 million mark and heading for 5 million and an average of more than 20% of the labour force. Over 700,000 jobs have been lost in construction alone as the fall out continues from the collapse in the once-booming residential property market. As the FT reports today ““Spain and Ireland together have accounted for 75 per cent of the eurozone’s unemployment increase in the 12 months to February, even though they make up only 14 per cent of gross domestic product,” he said. “That tells you a lot about how bad their performance has been. Spanish employers are pleading for a reform of Spanish labour laws, saying it is too expensive to hire and fire permanent workers.” More here from the Independent.
Spanish Economy - After the Fiesta
The Spanish economy is in trouble after out-performing the rest of the Euro Zone for the last decade. Download this special feature on the Spanish Economy…
read more...»Most Popular Topic Tags on the Economics Blog
recession, demand, economics, unemployment, prices, price, inflation, investment, costs, trade, profit, employment, debt, supply, downturn, euro, gdp, confidence, competition, risk, china, capacity, exports, production, incentives, oil, expectations, manufacturing, sterling, housing, pay, food, profits, banks, tutor2u, globalisation, mortgage, property, revision, retailers, slowdown, borrowing, usa, innovation, emissions, dollar, deflation, airlines, supermarkets, entrepreneur, monopsony, efficiency, productivity, google, elasticity, moodle, wealth, aqa, keynes, protectionism, welfare, consumption, externalities, saving, opec, economist, inequality, strategy, depression, competitiveness, economic cycle, tim harford, stocks, depreciation, jobs, monopoly, infrastructure, carbon, credit crunch, poverty, cars, bank of england, eu, vle, environmental, carbon trading, spare capacity, budget deficit, environment, subsidy, wages, market failure, management, regulation, evaluation, output gap, losses, behavioural, government failure, steel, climate change, construction, macroeconomics, imports, oligopoly, japan, bbc, skills, cpi, commodities, farming, newsnight, paul mason, intervention, fiscal stimulus, multiplier effect, single market, currencies, population, stagflation, itunes, contestable, lse, agflation, minimum wage, interest rates, choices, aviation, amazon, quantitative easing, germany, taxes, uk economy, monetary policy, cartel, survey, nationalisation, india, brazil, rpi, pricing, dan ariely, opportunity cost, apple, pollution, oecd, rationality, keynes society, rsa, relative poverty, shipping, iphone, capital, merger, currency, imf, balance of payments, yuan, tragedy of the commons, price discrimination, current account, economies of scale, redundancies, london, savings, facebook, stakeholders, shareholder, behavioural economics, mpc, supply chain, liquidity, takeover, barriers to entry, reputation, income elasticity, poverty trap, microsoft, human capital, hamish mcrae, subsidies, discrimination, roger bootle, federal reserve, robert peston, duopoly, immigration, suppliers, us economy, quiz, gini coefficient, collapse, coffee, obama, pensions, development, national debt, consumer surplus, crowding out, etonomics, eurozone, crude oil, scarcity, labour market, ecb, petrol, taxation, tesco, free, brand, smoking, budget, paradox of thrift, cost of living, transport, labour mobility, liquidity trap, global, speculation, starbucks, recovery, iceland, allocative efficiency, behaviour, surplus, david smith, waste, shareholders, ireland, happiness, growth, information failure, vat, creative destruction, open source, cost benefit analysis, trade deficit, tariffs, northern rock, edinburgh, comparative advantage, ownership, scrappage, robert frank, ocr economics, aggregate demand, freight, diane coyle, kaletsky, royal economic society, eton college, exploitation, labour force survey, government borrowing, utility, fishing, edexcel economics, sony, leverage, marginal cost, tax, paul krugman, information, discounting, animal spirits, peter day, contestable market, anchoring, nissan, zimbabwe, european union, savings ratio, wiki, needs, internet, public sector, evan davis, public goods, heathrow, price war, energy, hotels, standard of living, contestability, hbos, stephanie flanders, twitter, wants, migrants, poland, blog, consumer welfare, aqa economics, devaluation, spain, pubs, milk, foreign exchange, indirect tax, forecast, external shocks, eu enlargement, movies, advertising, enlargement, bond, mervyn king, income elasticity of demand, blogging, ebea, property rights, accelerator, edmund conway, deforestation, house prices, copper, hot money, jim o'neill, ucas, bonds, trend growth, libor, elasticity of supply, carbon tax, income, diesel, income tax, jobless, accelerator effect, law of unintended consequences, bric economies, guardian, youth unemployment, john kay, google wave, fixed costs, deficit, global economy, sub-prime, economic efficiency, exchange rates, vacancies, research, biofuel, renewable, companies, profit margin, price capping, joint venture, price mechanism, natural monopoly, world bank, martin wolf, training, startups, competition commission, gilts, geoff riley, immobility, coal, fairness, producer surplus, congestion, greece, redundancy, social costs, will king, sentiment, base rate, walmart, ageing population, disposable income, equity, corus, collusion, tickets, oil prices, fair trade, dynamic efficiency, obesity, social entrepreneur, russia, real income, res, binge drinking, philip allan, low pay, king of shaves, vehicles, broadband, cash, price fixing, tariff, hysteresis, tata, supply-side, government spending, eastern europe, internet explorer, income distribution, compound interest, contestable markets, positional goods, repossession, economax, general motors, sustainability, students, green shoots, ftse, age structure, frictional, satisficing, logic of life, pay floor, disincentives, yahoo, resources, gillette, liberalisation, blackberry, negative externalities, oft, aldi, migration, economics revision, financial times, fiscal drag, healthcare, asda, market structure, cadbury, credit, ryanair, wheat, market power, winners curse, apprenticeships, hidden unemployment, demography, cyclical, british airways, deindustrialisation, sovereign debt, credit cards, declan curry, nokia, renewable energy, optimal currency area, anti-trust, public good, decoupling, markets, diseconomies of scale, rory cellan-jones, the economist, barclays, economic welfare, tax burden, undercover economist, child poverty, retailing, pension, landfill, schumpeter, veblen goods, enterprise, brics, redistribution, floating exchange rate, gold, unintended consequences, vertical integration, structural, monetary policy committee, nhs, reserve currency, single currency, football, job losses, nairu, costa, nelson thornes, scotland, deleveraging, green revolution, drugs, collaboration, hyperinflation, automatic stabilisers, podcast, o2, motor industry, pay cuts, real gdp, monopoly power, global business, labour supply,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Need help. - Economic Growth
Economies of scale presentation A2
Economic development
International Competitiveness
Keynesian Aggregate Supply
Demand Supply (% VAT Imposed) How to...?
Policy conflict and the Euro
Registering for the tutor2u VLU
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
