The Dire Future of the Spanish Economy

Published on 01/11/2010 in Working in Spain

So, the registered jobless total in Spain is over the 4 million mark (4.02m)!  Indeed, over 20% of the Spanish working population is now unemployed, which is over twice the Eurozone average.

Sinking houseThis is dreadful news and heralds an increasingly hard time for anyone working in Spain conventionally.  Indeed, the outlook for the Spanish economy looks nothing if not gloomy – despite the Spanish government trying to ‘spin’ the reality to make it look better.  How they can do this escapes me as, shortly, austerity measures are going to come into play and further restrict government spending and thereby further increase unemployment.

Of course, no-one should be surprised at the poor prospects for economic recovery in Spain.  This is because the country faces a huge structural problem – namely how to replace the economic value of the ‘deceased’ Spanish construction industry.

In fact, I suspect, that Spain’s economic prospects could be crudely distilled to the question of: what has Spain got (or can develop quickly) to replace the wealth generation of its defunct construction industry?

This may seem an odd way of putting things but the Spanish construction industry accounted for something like 18% of GDP at the height of the boom, according to Spanish government figures.  In reality, I suspect that it was more like 30% of GDP, if its full impact was taken into account.  So, it was a major part of the Spanish economy and drove the economic miracle of Spain.

Of course, it is not ‘rocket science’ to realise, when there is a hole in the GDP of well over 18%, that it needs ‘filling’ – before any meaningful economic improvement can occur.

This may be a very simplistic way of looking at the economic prospects of Spain and offend professional economists.  However, the professional economists got the ‘boom and bust’ of Spain appallingly wrong (together with the world credit crunch!) and I am sure that looking at basic fundamentals is what really counts.  This, I fear, is no more than just the application of plain commonsense.

Certainly, I am unaware of anything ‘new’ that is occurring in Spain to replace the huge past value of its construction industry which, it is universally acknowledged, will be in the doldrums for years to come.  Until ‘something’ does, the future for the economy in Spain, frankly, looks dire.

What does this all mean – if you want to work in Spain?

Well, many of the ‘old certainties’ of easy money have gone and you should be under no illusions that you will be entering a tough marketplace if you move to Spain.  That does not mean that you cannot work in Spain or that there are no possibilities.  That would be the wrong impression.

However, as I write in my new book, you need to know the ‘cold’ truth and then be much cleverer than before to target and exploit precise niches.  These certainly do exist and I am a great believer in the cliche that states: ‘where there are problems – so also are there opportunities.  This is never more so the case than when a country has long term economic problems.  You just need to know where the opportunities are – or how to operate laterally within a troubled economy!

If you are well prepared you can work in Spain and earn a living here but be under no illusions about the Spanish economy revitalising fast – regardless of what, in the short tem, you read or hear elsewhere…

Written by: Nick Snelling (CultureSpain.com)

About the author:

I am a journalist and author of four books (three of which are about Spain) and I live permanently in Spain with my family. Indeed, I have lived in the Valencian mountains of Spain (not far from Gandia) since 2003, although I have known Spain well since the mid 1970s.  See my website about Spanish Culture at www.culturespain.com




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Comments:

victor said:
01 May 2011 @ 09:50

The problem in Spain is that the average Spaniard puts helping relatives, friends, business associates and professional affinity above fairness and above any norm or law, not only on money matters but also to choose people for jobs. Those same values make it impossible to apply any rule. People in Spain practice this all over. At the "top" you have the Basques that, while harder working, they put money above everything else including life, this is why after having their own police force for decades they are unable to erradicate the money system that feeds ETA, and the fear of families to speak freely about politics even at home! Besides that they have the same influence corruption. The rest of the Spaniards are somewhat less hard working than the Basques, except the Catalans, but ALL share similar values:"family and friends above the law always". With such value system it is impossible to build a society based on merit and the rule of law. Short of a cultural "germanic-japanese tsunami", there will be no changes. The average Spaniard looks at the current crisis as something that will pass with a bit of luck, of sun and more German money. If the Germans do not smarten up and get real draconian, again their prosperity will be again "bombed into oblivion", this time by the debts of their Southern European "partners". Spain is into denial and mutual blaming but not into collective self responsibility. Hard to believe this country once ruled the World.


victor said:
01 May 2011 @ 09:26

The problem in Spain is that the average Spaniard puts helping relatives, friends, business associates and professional affinity above fairness and above any norm or law, not only on money matters but also to choose people for jobs. Those same values make it impossible to apply any rule. People in Spain practice this all over. The Basques put nationalistic feelings above life


scottish. said:
25 March 2011 @ 13:29

hi well i been working here in north spain (galicia) for over 15 years i speak and write in spanish and also in gallgo...but know i have come up to a big problem iam now out of work but still living in spain.but i been working for the same company for 12 years i was a class one (hgv) driver got payed good had a fantastic time there.but now it has come to the end what with this economics out look is not looking good and now iam forces to going back to england to work as my boys are here...and i been talking to lots of spanish friends and they think this problem is here to stay for a very long time.for over 10 years spain just lived on building work and nothing more.well it's come to and end and now spain is sinking like the titanic.
what furture doe's spain have now and for me and my family.now i have to go and my wife and my kids stay here this is so sad and this is the problem for spain for not seeing this problem coming!.



Galina said:
17 January 2011 @ 13:11

Dear Mr. Snelling,
I"ve read your article and other comments with particular interest because I am a scientific researcher myself dealing with studies of spanish economy here in Russia. I quite agree with the author's opinion on the problem. I've just written my own article on the theme which is to be pudlished in our scientific journal. When ready I'll try to translate and send it to you for comments if you don't mind. Rgds.Galina



freddy said:
07 November 2010 @ 20:12

Nick, like your unbalanced article, none of us want Agents hype. I have just returned from a short hol in Costa Blanca at an infamamus resort begining with B (ashamed to admit to it!). However, met two Brit guys doing gigs and have plenty of work. When leaving Alicante airport I counted 15 aircraft on the tarmac and all were from the UK eg Thomson, Thos Cook, Monarch etc etc. Spoke to many Brits who will keep coming to Espana as long as there is a bright yelllow up above and a large blue expanse out there and until that last Peseta has finally burnt a hole in our pocket. Keep coming Brits and indirectly support our expat friends through helping the Spanish ecconomy


Sam said:
06 November 2010 @ 19:01

I agree with most but not all of what you say. There is a book written by Robert Beckman which illustrates the workings of recessions and depressions, the book is called "The Downwave" a great read,printed 1983, It's so factual and 27 years on we've not learnt a great deal.


TJ222 said:
05 November 2010 @ 19:40

The article is at least a fair assessment of the future for Spain, but I feel compelled to point out that it has a major flaw, and perhaps this is what is wrong with most people's thinking, including most economists, so this is no offence to the writer.

There was very little wealth creation produced by the construction industry, what it did create was a fantastic amount of debt. The jobs and wealth actually were an illusion which evaporated as quickly as the cheap money, sadly the debt however is very real and still remains to haunt the country and its economy.

What is now becoming increasingly apparent is that the economies of the world are now split between countries whose wealth was real and those which was not. Countries like Spain and the UK and the US whose future was based on a housing boom and its associated retail consumption are now still mired in unemployment and stagnation, with the future threat of crushing inflation. Countries like Germany and Canada and Australia are starting to boom again and are having to raise rates.

And here is the nub. Germany's wealth is based on real production of engineering and technology, German engineering is prized all over the world. Canada and Australia's wealth is largely based on mineral commodities which are increasingly required by the rapidly growing East. India and China everyone knows is booming because they produce practically everything we buy.

Housing does not create wealth, wealth creates housing. You can;t take a country like Spain and put it into a rich club of Europe and then expect it to become wealthy by a process of osmosis. In Spain's case the problem is not the credit crunch or the recession, these are the solution. The problem was the boom, which was created by forcing incredibly diverse economies together under one interest rate policy and a cheap money policy started by the US.

The boom in property in which Spain so eagerly took part was in fact just masking ongoing structural problems and a decline in productivity. The debt taken on at a consumer and governmental level, just hid the fact that the country was getting poorer with every passing year. As soon as that debt was withdrawn which was always only a matter of time, it became increasingly clear what the true situation was.

The bottom for most of Club Med and the UK and US is I fear a long way off. Instead of starting to tackle the real problems in their respective countries, these economies are now resorting to printing money out of thin air. You don;t need history to tell you what happens when you do this.

I did a quick search for "the coming worldwide credit crunch" which I wrote just over three years ago, but could not find it. In that thread I detailed everything that Spain could expect going forward. I challenge anyone who read it to tell me what did not pan out.



Sam said:
03 November 2010 @ 13:40

Well put Nick Snelling, I would also like to add the estimated corruption figures re Bloomberg is approx 28bn euros per annum or rather was at the height of construction. Corruption goes right to the top as we all know, strangely most med countries are tied with the same brush in this context. As for living in the same era as the Franco regime, not true and in many respects the country was run better. This joker doesnt have a clue and hes only there because of the Madrid bombings. I can never understand why a country like Spain, very strategically placed for Europe and the Americas only produce on a very minor scale, but I realise now it is there arrogant approach to business that would put off any worthy investors. How can it be possible for Germany who we have to admit are the power house of Europe and the finest manufacturing nation in the world, work within the same financial system as Spain, abiding to the same exchange rates. The Spanish were better off under the Peseta and so were the Brits. Theres a clash of cultures here and untill they adapt to being more honest, customer aware and work harder, they will be always looking to be bailed out. China has promised it will pump big money into Europe if needed, that I think sounds promising for Spain. Sam, Forex Trader


Vikki said:
03 November 2010 @ 12:01

Just like to say a thankyou to Christopher Gamble for writing such a authoritative article on Spain. Just hope that the many brits out there read it before investing their life saving into the Spanish dream. Telefonica, Endessa and the banks just one long nightmare, still trading and living in the Franco era


Christopher Gamble said:
03 November 2010 @ 10:04

I agree wholeheartedly with Nick Snelling. The void left by the previously overstated value in the construction industry and consquencial plummet in house prices in Spain will need to recover or be replaced for the Spanish economy to stabilise and then regrow. Sadly, there are few signs this can happen under the current regime or current National cultural conditions.
From the outside looking in Spain are seen as 'corrupt', difficult to deal with, un trustworthy, individualistic, protectionist, autocratic and even ';acting like children' as one EU notary indicated. Whilst Spain leads the nose dive for the EU into economic self harm nothing changes. Its a hell of a dificult place to do business. Petty jealousy, family hiercarchies, union resistance and missunderstanding for change, public services corruption, black economy, ignorance of EU standards and minimum wages, a culture of mediocre to dismal dictatorial customer service led by the monolith monopolies of Telefonica, Endessa and the banks. Spain is in denial. it wants the hand-outs to fund its infrastructure and put nothing back. Its people put-up and shut-up with inferior standards and shoddy management in the manufacturing and retail sectors. Where else in the world are you told you MUST giver your personal details to a retailer to receive what is a standard EU directive for a two year guarantee on electrical products? This is a about basic attitude, arrogance and education. Whilst the world works hard to rebuild its economy, Spain is busy in-fighting over corrupt local authorities, unpaid police forces and resistance to what is nothing more than 'lip service' labour reforms. What's need is a root and branch economiuc and cultural overhaul. Sad as it is, Spain can not be trusted to do this naturally. Whilst admidst the very real threat of a second dip with property prices due to fall radically, the largest unemplyment in the EU, and with noise about the current banks' reposssesions being 'just a tip of an iceberg' , Spain makes its self busy with social issues, feminist government and strategic welfare whilst the baby goes out unnoticed with the bath water! does it really need a Right Wing



Nick Snelling said:
02 November 2010 @ 16:37

I am glad to see that my article has provoked some debate! The point that I was making was that the construction industry was so huge that it needs to be replaced, size for size, by something else before Spain will have much chance of meaningful recovery. That is a problem and I can see no obvious 'something' on the horizon. Until there is - any vaunted recovery will be little more than tinkering around the edges of an economy in deep, long term trouble.

Needless to say, the shocking reputation gained by the Spanish property industry over the past few years is not helpful. Indeed, much needs to be done to correct this, so that Spain is (and is perceived to be) a place completely safe in which to buy.

As Graham so rightly points out (and I make clear in my book 'How to Move Safely to Spain') - if due diligence is carried out then you can buy safely here. However, exceptional due diligence is necessary, given the 'laxness' of lawyers here and the tolerance of the 'system' to abuses that would never be tolerated in Northern Europe.

Of course, there are different foreign buyers around - thank Heavens! However, as Graham so aptly pointed out, even during the boom, foreign buyers barely amounted to 10% of national sales. So, even booming foreigner-driven sales will alter very little - and certainly nothing in the big cities and inland areas.

So, in short, be wary of 'green shoots of recovery' tales...



mike walsh said:
02 November 2010 @ 15:50

FAO JoJo Glass:

"Next the statesmen will invent cheap lies, putting the blame upon the nation that is attacked, and every man will be glad of those conscience-soothing falsities, and will diligently study them, and refuse to examine any refutations of them; and thus he will by and by convince himself that the war is just, and will thank God for the better sleep he enjoys after this process of grotesque self-deception." : Mark Twain. The Mysterious Stranger 1916.



Graham said:
02 November 2010 @ 14:31

@Ron the prices are not drastically lower as people in many cases refuse to lower unrealistic expectations. The banks as stated above are half of the problem and yes they do steal agents' clients and also clients for private sales. They offer a much better mortgage deal to the buyer on their own properties as they need to offload them before they become a liability on their books and they have to provision 30% to the bank of. Spain.
@colin The land grab thing. Where?
@vikki do your due diligence and your property is as safe as houses. Don't do it and you get problems. I have just advised a client not to buy last week because I couldn't be confident about the legal status as the roads were going to be done and a part of the garden would have to be given up for a roundabout. Unfortunately many people get these warnings and still go ahead and buy then blame the agent, lawyer etc... Even though they were told about it.



jojo glass said:
02 November 2010 @ 12:59

Mike Walsh..oh my goodness..IF ONLY the BAD yanks would let IRAN run free, the world would be utter paradise!!!!!!!!!!!!!!!!!!!! And all of your problems would be solved!!!!!!!!!!!!!!!!To quote a Brit friend: "if my auntie had a whatzit, she'd be my uncle...but she doesn't so she isn't"


Colin Byrne said:
02 November 2010 @ 12:31

We are currently being subjected to Land Grab where a developer is taking over half our gardens to include in his Urbanisation. Every legal advice we have sort confirms the law is on his side.? Stop this and other land abuses, together with good planning practices, would help attract northern europeans back to retire in Spain.


Ron said:
02 November 2010 @ 12:18

Graham I find your points interesting however: surely from an estate agents point of view the drastically reduced resale property prices should help these people with wages being lower but then again it will depend on the Banks and how much they want to help the mountain of property for sale. We have two properties for sale near the beach in Casares and our potential English buyer went to a Spanish Bank for a small mortgage. The bank then proceeded to sell our buyer one of their properties. So in effect they stole our client, took the money he would have paid us and for all we know sold him a better deal for a mortgage possibly on a bigger apartment. This is the other nasty side the banks are going to adopt to off load their massive portfolio of repossessed properties. You would think by now the Banks would want to help the resale market flourish for the Spanish economy but instead they are just as corrupt as all the Mayors you described.


Vikki said:
02 November 2010 @ 11:34

Stop the land grap abuse and you will see lots of Brits return to the Spanish property market, I for one don't need to work in Spain , but need to feel secure that my investment is safe, sadly at present I cannot say that Spain has done enough to convince me. So I am looking at other countries where property rights are respected.


Graham said:
02 November 2010 @ 09:57

@leo Not possible to calculate it really just speculate but it would be rare to see a poor ex Mayor in Spain unless they are in prison.


Jacqui said:
02 November 2010 @ 09:57

It will take years (possibly decades) for the Spanish property market to recover. The only thing that will start to generate employment again, is help for small businesses by reducing the employers social security contributions which are crippling. Lower the contribution and companies can take on more staff. The staff will pay tax/ social security into the system, they wont be claiming unemployment benefits, and they will become consumers again. Until this happens( and unfortunately at the moment it doesn´t look likely) things will not start to improve.


leo said:
02 November 2010 @ 09:25

I do wonder how much the corruption during the building boom has effected the Spanish economy.
Is it possible to calculate the vast amounts of money that have been taken out of the economy to vegetate under the mattresses of Mayors, council officials, lawyers builders, investors and a myriad other smaller cogs in the greased up wheels of corruption.
It is reported that corruption is now on the decline, but perhaps that is because there is much less money about than in the boom years.



Graham said:
02 November 2010 @ 08:51

Sorry Mike but I disagree. The percentage of sales to foreigners even at the height of the boom was under 10% of course. Even if Russians could replace the Brits, Germans etc the bare facts are that Spanish people cannot buy for various reasons;
1) No mortgage availability
2) 4 Million unemployed
3) Low wages compared with property asking prices.

I worked with Nick on the Work in Spain book, it basically comes from my ideas and what I have been doing apart from being an Estate Agent. The feedback we are getting is phenomenal and people are starting to earn money from it, which I like more than anything as real world jobs are like hen's teeth especially for expats with little or no Spanish and high salary expectations.

The more foreigners that come in the better but they will not rescue the property market, that needs concerted effort by the Spanish government, Spanish banks and developers to open up the credit market and revise the penalties in place on default. Also we need to review the labour market in Spain to encourage recruitment because at the moment it doesn't.



mike walsh said:
02 November 2010 @ 08:39

recovery of the housing market isn't rocket science. The downturn has caused English speaking buyers to evaporate. However, the global downturn is not global. Most of the earth's nations are unaffected; some are doing very well thank you.

The Far East is thriving and Iran is sitting on enormous wealth. If only we could get America's boot off that country's throat. Of importance to Span; Brazil and other South American economies. Watch when they replace the dollar with the sucre.

Much more to the point; the Russian Federation; growth there is healthy. The Alpine regions; Estonia, Cyprus, Bulgaria - and to a lesser extent Spain, are benefitting from the increased sales to the Russians. Drop the barriers and then watch sales and prices surge.


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