In Spain, there are currently around 5.4 million unemployed people, which is 23.3% of the working population, according to Eurostat. Spain is in its second recession in five years and GDP growth for 2012 is forecast to be -1.3%. Even if someone comes up with a plan by 2014, Spain won’t recover until 2030.
Three years ago, I wrote that the Spanish economy might recover by the year 2022, based on how long it takes to create and grow a real company that provides real jobs in the real world, not in politicians’ la-la land or via dodgy get-rich-quick schemes.
Last year, I recalculated that based on an economic concept I learnt about called ‘Okun’s law’. Krugman wrote about it on his blog, and said the US economy was in a deep hole. I wondered what type of hole that meant Spain was in. The recalculation gave us a new date of a year between 2023 and 2029, depending on when growth was scheduled to return to Iberia.
The idea behind Okun’s law, which seems sensible enough, is that—obviously, you might say—economic growth causes job creation, so a certain level of GDP growth (generally held to be 2%) is necessary to lower the unemployment rate by 1%.
In Spain, unsurprisingly, that GDP growth figure is higher than the average, and has been estimated at 2.8% GDP growth.
Now, the Spanish economy grew just 0.7% last year and is already back in recession. The forecast for Spanish GDP growth in 2012 is negative: -1.3%.
Spain will not return to unemployment-destroying levels of economic growth for a long time unless someone comes up with a very good plan, very quickly.
You see, even during the real-estate boom years, between 2000-2007, Spain didn’t really grow its GDP by much more than 2.8%. Have a look (via Wikipedia):
Remember, those GDP figures for Spain weret thanks to all of that construction activity, and construction activity isn’t coming back to Spain anytime soon.
First, look at mortgage activity in Spain, since October 2005. This is the number of mortgages awarded each month (INE data):
Next, look at house price activity over the last two years, since the first quarter of 2010 (INE data):
They’re not very hopeful graphs, are they?
Furthermore, if, as you’d expect, Spanish businesses become more efficient and improve their use of technology as they fight their way through the second Spanish recession since 2008, it would also be logical for GDP to start growing again one day without employing so many workers, which would imply the 2.8% GDP growth figure would need to be higher next time around.
Let’s be generous and say that Spain needs to grow its GDP by 3% in order to remove 1% from the unemployment figure, which is currently 23.3%.
We are starting this year from a postition of -1.3% GDP growth for Spain in 2012.
The Spanish plan needs to replace a 4.3% hole in its GDP in order to reduce the Spanish unemployment rate to 22.3% in the following twelve months.
So, if GDP growth in 2013 were +3%, the unemployment rate would fall to 22.3% by the end of that year.
We would then need to keep that level of GDP growth up for another 16 years to get back to 7% unemployment, which is about where we were in 2007.
- There will now almost certainly be negative economic growth for the next couple of years, until 2014, and that;
- There is no big Spanish plan to get out of this hole;
…we can now suggest that Spain is unlikely to be back where it was in 2007 even by the year 2030; and that, loyal reader, is a very, very bad state of affairs.