Economic Crisis bites

[John50]

A pal of mine owns and is the chef in a 120 cover restaurant in Orihuela Costa. I won't disclose the name other than to say it has been very successful. He informed me last evening that his takings are down 50%.
Further that a couple of well known restaurant business names are soon to disappear due to the crunch.

Today, I was having a coffee in a bar in La Siesta when I overheard the following conversation between a group of late middle aged Spanish:

'Do you think Obama will make much of a difference ?'
'No.'
'How quiet things are here now.'
'Most of the English have gone home now that's why.'
'Let us hope they do not come back - they have brought us nothing but ruin and they have destroyed the area.'
'They came here to make money and now they have failed, they will go and ruin somewhere else.'
'They are arrogant and awful.'

I wonder if Spanish restaurant businesses will be affected by the exodus or whether they will quietly exist long after all the businesses set up by incomers have faded away ?

[koali]

Glad to see its the English and not the other Britons who get the blame !

Anyway, this was in a recent broadsheet newspaper and there have been some damning articles about Torrevieja & Orihuela Costa:

Expats in Spain: Britons turn to courts over 'Costa del Crash'
By Fiona Govan

Britons who invested in new homes in southern Spain are preparing to take legal action against property developers whose businesses have collapsed.

Lawyers specialising in property report a surge in the number of British buyers contacting them for advice.

Thousands of buyers who have not yet taken ownership of their properties on what has become known as the "Costa del Crash" could lose everything. Others who have paid in full now own homes in resorts that may never be completed.

"I've got dozens of British clients who all want to know where they stand," said Martin de la Herran, of the law firm Abolex.

He said the biggest problem lay with people who had paid deposits on properties that may never be built: "Some people have paid 50-60 per cent of the final cost of the home, the company goes into administration and it's a long process to get their money back. Courts are not fast in Spain, as we know."

At the resort of Costa Esuri in Ayamonte, on the Portuguese border, building work has ceased. The developer, Martinsa-Fadesa, one of Spain's largest property companies, has filed for bankruptcy - as have about 60 smaller firms since the start of the year, when the bubble burst on a decade-long construction boom that had fuelled Spain's economy.

The development of 2,184 homes and two golf courses is far from complete. Unfinished buildings cover one hillside, cranes loom over a half-built hotel and one golf course is little more than bare earth.

Ben and Kate Byrne, newly-weds from Warrington, Cheshire, have just taken possession of their three-bedroom "town house". The couple, who paid €230,000 (£180,000), had hoped to use it as a holiday retreat and to rent it out for the rest of the year.

"It's an eyesore and not exactly what we thought we were buying into," said Mrs Byrne, 30, a personal assistant at the Environment Agency. "Unfortunately, its rental potential isn't much at the moment."

The house is not connected to mains water and has been without electricity since Martinsa-Fadesa went into administration and stopped running the generator. A centre to contain shops and restaurants lies unfinished.

"This was supposed to be a self-contained community, but there is nothing here at the moment except for the clubhouse," said Mrs Byrne.

The estimated 1,000 people, about 700 of them British, who have already taken possession of Costa Esuri properties are frustrated at the lack of information from Martinsa-Fadesa about what will happen next. They have formed a residents' committee and are taking legal advice.

"We've been told nothing by the company," said Mr Byrne, 31, a musician.

[John50]

Economic slump hits Spain hard after 14-year boom

Economic slump hits Spain hard after 14-year boom
Business News


By Sinikka Tarvainen


Madrid - 'Clearance sale for closure.' - 'To let.' Signs in Spanish shop windows reflect the deepening economic crisis that has shocked a nation accustomed to high growth rates and the good life.

'We have been spending beyond our possibilities, without undertaking the necessary structural reforms,' economist Juan Delgado said grimly.

That reality is increasingly sinking in as economic figures go even further into the red.

Growth is expected to drop from 3.8 per cent in 2007 to near zero this year. Inflation is running at about 5 per cent and unemployment is likely to soar past 10 per cent, up from 8.3 per cent last year.

About 10,000 shops have closed, hundreds of companies have declared bankruptcy and families are struggling to pay mortgages and debts, with some women even going into prostitution to make ends meet.

'The worst is still to come,' the autonomous workers' federation ATA warned, predicting the closure of more than 80,000 shops or 10 per cent of the total.

'The economic situation is worse than we all expected,' Economy Minister Pedro Solbes admitted recently, after the government had downplayed the problems and refused for weeks to use the word 'crisis.'

The shock is proportionate to the economic boom that went on for 14 years and was the envy of many other European countries.

The growth was, however, largely based on the overheated real estate sector, which has contributed 18 per cent of the gross domestic product (GDP).

Spain built up to 800,000 homes annually, as many as Germany, France and Italy combined.

Nearly 90 per cent of Spanish families are home owners, and the property boom was also fuelled by the construction of second homes as well as hotels in tourism areas.

Rising interest rates and the global credit crunch have now burst the real estate bubble, with more than 500,000 newly-built homes unable to find buyers.

Another growth engine, the tourism sector, is not expected to grow much more as cheaper destinations have emerged to compete with Spain.

After years of a growth based largely on cheap credit, Spanish companies and families are among the most indebted in the world.

The paralysis of the property sector is spreading through the economy, with industrial production dropping by 9 per cent in June compared with the same month in 2007, its steepest fall since April 1993.

Multinational companies investing in Spain have warned of problems in a wide range of sectors, with for instance car sales plunging by nearly 30 per cent in three months.

Unemployment has hit especially immigrants from Latin America, Africa and eastern Europe, many of whom worked at construction sites.

Spain now has some half a million unemployed foreigners, one-fifth more than three months ago. Thousands of them are preparing to return home with the help of financial incentives offered by the government.

The government blames the slump largely on international factors such as the weak US and European economies and high oil prices, but analysts point out that the crisis is hitting Spain harder than many nearby countries.

Relying on the fast and easy money turned over by the construction sector, Spain failed to diversify its economy and to favour the creation of large export-oriented companies, experts say.

'Nobody is interested in technological innovation, research, or the quality of the educational system ... They are our weak points,' European Economic Affairs Commissioner Joaquin Almunia warned his home country already in 2006.

The government has now adopted measures ranging from financial facilities for small- and medium-sized companies to more public works, but few people expect them to do more than to slightly ease the crisis.

Spain needed nothing less than a 'radical change in the growth model,' the daily El Pais said in an editorial.


and here:

Spain's small businesses struggle to survive financial crisis - International Herald Tribune

[John50]

Property: Costa crisis hits estate agents - Guardian Finance article

Estate agents used to be so pervasive in Spain that some authorities sought to stop them taking over tourist haunts. But according to figures published yesterday, in only six months the number of estate agents' offices has been reduced by more than half.

The 10 largest estate agents had 3,001 offices between them at the end of 2007, but now only 1,434 remain open. For sale or closed signs are a common sight outside former estate agents, particularly on the Costa del Sol or Costa Blanca, two regions popular with British buyers.

Some commentators believe contraction was inevitable. "The closure of estate agents has been brutal," said Santiago Baena, president of the Spanish College of Estate Agents. "We always said training was essential but they ask for more training for a man selling lettuce in the market because he has to use a machine than estate agents."

Two of Spain's major estate agents, Don Piso and Fincas Corral, have gone up for sale. Don Piso cut the number of offices from 400 last year, to 140. MC Inmobiliaria, another major agency, owned 218 offices last year, but now operates from 60 - a fall of 72.5%.

It is another symbol of the deepening crisis in Spain's construction sector after its decade-long building bubble burst. Spanish construction output fell 3.1% in June, according to figures from Eurostat, the EU statistics office.

The collapse has hit the Spanish economy. Gross domestic product grew 1.8% year on year in the second quarter, compared with 2.7% in the first quarter, according to the Bank of Spain.

With demand for homes falling, unemployment is rising, reaching a 10-year high in July of 2.43 million. Nearly two thirds of those out of work were building workers.

María Angeles Repilado, of Spain's General Workers' Union, predicted many unemployed building workers would pick grapes in France this summer, earning €8.71 (£6.95) an hour instead of €6 on building sites.

The mass closure of estate agents' offices may also be a symptom of the way the industry is changing. Gareth Milton, operations manager of propertyshowrooms.com, said: "Companies who had always focused on web-based activities without the massive overheads associated with a network of physical branch offices are the ones more likely to weather the storm."

[John50]

Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust - despite membership of the eurozone.

The Banco de Espana's holdings of foreign currencies and gold have fallen to €13.2bn (£9.02bn), equivalent to 12 days of imports.

Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from €41.5bn in early 2002. Greece and Portugal have seen a similar drop.

By contrast, the overall reserves of the eurozone system have remained stable. France (€76bn), Germany (€86bn), Italy (€59.5bn) have all kept holdings at full strength since the launch of the euro.

The Banco de España refused to comment on the sales, leaving it unclear why reserves have fallen so low, or where the money has gone.

It appears the bank has been draining the reserves to help finance the current account deficit, which has ballooned to 9.5pc of GDP, reaching €8.6bn in January alone.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

"We have the worst deficit in our history and worse than any other country in the western world. It has not yet become a 'street concern', but I can assure you that it is of great concern to us economists. This will turn bad over the next 18 months," he said.

It is often assumed that reserves no longer matter once a country has joined the euro, but this ignores a crucial element in the workings of the EMU system. It is responsibility of the 13 national central banks to act as lender of last resort in a crisis, even though they have no control over interest rates.

"Where this gets serious is if there is a property collapse in Spain and the banks get into trouble," said Prof Tim Congdon, an expert on monetary policy.

The first signs of a housing slump are emerging as the ECB raises interest rates, already up seven times to 3.75pc since December 2005. The shares of Valencia builder Astroc have fallen 77pc since February, setting off a sharp slide across the sector, with knock-on effects on banks with mortgage exposure.

Morgan Stanley said construction accounts for 17.7pc of GDP, even higher than the 15pc peak reached in Germany after reunification - a boom-bust saga that left German banks prostrate for years.

Spain's private sector has amassed $600bn (£300bn) in foreign debts. Corporate borrowing is 100pc of GDP. The overall stock of mortgages has increased sixfold in a decade. Household debt has reached 120pc of disposable income, largely on floating rates.

Prof Congdon said Japan was able to uphold its banking system in the post-bubble slump of the 1990s because the government could guarantee deposits. "You can't do that in the eurozone because there is no government to turn to," he said.

Each country is on its own. The ECB may interevene only if the crisis spreads across the eurozone, and it is forbidden from bailing out the member states. The International Monetary Fund warns that the structure leaves EMU exposed to "systemic financial risk".

Reserves are a key defence for each state, hence the EMU quirk that national banks retain the lion's share of reserves. The ECB has a token 13pc.

For now Spain is still looking rosy: growth was 4pc in the first quarter; the budget surplus is 1.8pc of GDP; and export share is holding up reasonably well.

However, the party is ending after a near tripling of house prices since 1995. In a report, The End is Nigh, Jamie Dannhauser from Lombard Street Research, said Madrid is now making matters worse with a new law to hit property speculators.

"This screams of closing the stable door after the horse has bolted. House price growth has clearly peaked and is decelerating quickly. Speculators appear to have got out already, sensing the dangers that lie ahead," he said.

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

[Fenderman]

Just to redress the balance on this subject.....

From the BBC Website:

Another big rise in UK unemployment is expected in official figures out later.
The jobless total is expected to pass 1.8 million, reaching its highest level since 1998. The total was 1.79 million in the last figures up to August.

It comes after a day of job cuts. On Tuesday, Virgin Media and Yell axed a total of 3,500 and GlaxoSmithKline said it will close its Kent factory in 2013.

Bank of England economic forecasts also due out are "widely assumed" to be "grim", says the BBC's Nils Blythe.

The forecasts will have been considered ahead of the Bank's 1.5 percentage points interest rate cut last week.

The Office for National Statistics' unemployment figures for the three months to September, as well as the number claiming Jobseeker's Allowance in October, are due out at 0930 GMT.

Last month's figures for the quarter to August showed the unemployment total rise by 164,000, its biggest leap for 17 years.

BBC business correspondent Nils Blythe says: "The job losses started in the construction industry but are now being felt in finance and manufacturing.

"The expectation is that the knock-on effects will lead to more job losses in businesses like shops, hotels and restaurants."

TUC general secretary Brendan Barber said the unemployment total was rising by an average of more than 1,000 a day.

"But we should never treat these as just statistics," he said.
"Each will be a very human story, and as it gets harder and harder to find new jobs many will now be facing a huge cut in their weekly income with benefits so low."

The TUC wants the government's pre-Budget report, expected next week, to increase unemployment benefits alongside any tax cuts.

Mr Barber said increasing unemployment benefit was "the quickest way to stimulate the economy".

"Jobseeker's allowance is less than £10 a day. Going from a typical wage down to this poverty income will be a terrible shock for people losing their job through no fault of their own."

He added: "With unemployment now climbing every month, there can be no case that poverty level benefits keep unemployment down."

Keep an eye on the scales please John, it is no picnic anywhere at the moment.

[John50]

Just to redress the balance on this subject.....

From the BBC Website:

Another big rise in UK unemployment is expected in official figures out later.
The jobless total is expected to pass 1.8 million, reaching its highest level since 1998. The total was 1.79 million in the last figures up to August.

It comes after a day of job cuts. On Tuesday, Virgin Media and Yell axed a total of 3,500 and GlaxoSmithKline said it will close its Kent factory in 2013.

Bank of England economic forecasts also due out are "widely assumed" to be "grim", says the BBC's Nils Blythe.

The forecasts will have been considered ahead of the Bank's 1.5 percentage points interest rate cut last week.

The Office for National Statistics' unemployment figures for the three months to September, as well as the number claiming Jobseeker's Allowance in October, are due out at 0930 GMT.

Last month's figures for the quarter to August showed the unemployment total rise by 164,000, its biggest leap for 17 years.

BBC business correspondent Nils Blythe says: "The job losses started in the construction industry but are now being felt in finance and manufacturing.

"The expectation is that the knock-on effects will lead to more job losses in businesses like shops, hotels and restaurants."

TUC general secretary Brendan Barber said the unemployment total was rising by an average of more than 1,000 a day.

"But we should never treat these as just statistics," he said.
"Each will be a very human story, and as it gets harder and harder to find new jobs many will now be facing a huge cut in their weekly income with benefits so low."

The TUC wants the government's pre-Budget report, expected next week, to increase unemployment benefits alongside any tax cuts.

Mr Barber said increasing unemployment benefit was "the quickest way to stimulate the economy".

"Jobseeker's allowance is less than £10 a day. Going from a typical wage down to this poverty income will be a terrible shock for people losing their job through no fault of their own."

He added: "With unemployment now climbing every month, there can be no case that poverty level benefits keep unemployment down."

Keep an eye on the scales please John, it is no picnic anywhere at the moment.

Noted. But I live in Spain.