Spain: Next Stop – recession

Spain is perhaps the next domino in the global credit bubble to fall. The UK economy is slowing as well, but the pace of slowing in Spain is truly remarkable.

According to Spanish-language news reports I have seen today (see Round-up), Spain is being hit with a housing bust that has led to increasing unemployment and reduced capital spending in the building sector. Simultaneously, food prices are soaring. All of this las led to a slowdown in industrial production that should feed through to slower consumer spending and recession.

The boom in Spain has been much greater than it was in the U.S. Yet, the Spanish economy cannot expect lower interest rates to bail them out as in the U.S.. Because Spain is a part of the Euro-zone and is beholden to the European Central Bank (ECB), rates will not fall quickly. The ECB sees inflation as a risk and the economy is still doing fine in larger economies like Germany and France. It is likely to take a measured approach, as a result.

The question is whether these effects will feed through the economy quicker than in the U.S. because the credit cycle is already on its way down and credit is tight. Perhaps, a quicker end is better than the long drawn out affair the U.S. is going through right now. Then Spain could pick up the pieces and move on.

See also: Other posts under the label ‘Spain.’