Spain’s National Statistics Institute reported that the fourth-quarter unemployment rate reached 22.9%. That is up from 21.5% in the previous quarter. Spain does not have the economic engine to improve this number, and the austerity programs it must put in place to keep global investors from abandoning its debt makes the problem even greater. The situation, in other words, has become impossible to improve.
Employment in Spain depends heavily on two industries — tourism and auto manufacturing. The car industry in Europe has been crippled by the region’s recession. Auto sales in the European Union continue to fall. Spain does not make cars that have export potential for the two largest markets — the U.S. and China. That makes a sharp recovery of the sector unlikely.
Tourism may continue to do relatively well, but the number of travelers from its neighbors will be constrained by the economic problems of their citizens. In other words, Spain’s tourism industry will not grow rapidly soon.
Spain is caught in the same vice that Greece and Portugal are. The government does not have the wherewithal to spend the billions of euros it would take to stimulate business and create new jobs. The public sector will have to pare employment as part of austerity plans. Traditionally strong sectors are no longer strong.
This year at Davos, many economists and financial leaders from around the world called on the eurozone to put an investment of growth ahead of austerity, because otherwise much of Europe will slide into an economic dark age. Spain is an example of why even a modest investment in growth across the region will be ineffective. The pillars of its GDP have been too badly eroded. It will require the rise of a new services economy and an industrial revival to offset rising unemployment. The investment to do that would be massive, and it would have to be made over a number of years. It will take that long to rebuild Spain’s economy nearly from scratch.
Douglas A. McIntyre
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