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Spain may be in the midst of a weak recovery, but don’t expect its massive 20% unemployment rate to fall anytime soon, according to BNP Paribas analyst Thibault Mercier.Mercier describes a situation that is already ghastly in terms of unemployment, and then makes it even worse by projecting a potential small increase in the coming months, from 20 to 21%.
The reason why this is still happening in Spain is because only one sector of the economy is actually contributing to growth.
From Thibault Mercier:
Indeed, domestic demand is likely to drag down growth throughout the year. Rising unemployment, wage moderation and high energy and commodity prices will probably limit purchasing power while the rise in interest rates is likely to have a significant impact on households’ interest expenses, as most of their debt is at floating interest rates. Property prices, which are expected to fall again this year, will be another source of worry for households, prompting them to maintain their precautionary savings.
Foreign trade therefore seems likely to be the only source of growth. It is expected to benefit from the Spanish economy’s improved competitiveness and from slower growth in imports in spite of the high energy prices.
So while Spain continues with austerity measures, it can expect weak growth and little improvement on the unemployment front. One risk to austerity is elections soon to come, though that looks likely to be won by conservative elements at the moment.