UBS: ‘The disaster in Spain will continue’
This is a translation of a Spanish-language article from Finanzas.
For UBS, there is no debate about the economy’s green shoots despite the improvement in employment and the slowest fall in consumption and industrial production. In a harsh report on Spain, the Swiss bank says that the worst is yet to come, and that unemployment will reach 20% of the population.
The institution ensures that the latest figures released “have shown a marked deterioration in the situation.” For the bank, the problem began with an unprecedented housing bubble, both in size and price, which now has spread to other sectors as demonstrated by the collapse of industrial production – which has fallen by nearly 30% and contributed more than the construction sector to the fall in Gross Domestic Product (GDP).
“We see very few reasons to be optimistic in the short term. The future will be much better, “say UBS analysts, none of them Spaniards, whose work has been supported by another study on the domestic banking sector. “The labour market will continue to deteriorate rapidly, with devastating effects on the rest of the economy!” they say. According to their calculations, unemployment will exceed 20% at the end of 2010.
In the view of the Swiss group, the construction sector has gone from employing 2.7 million workers in the second quarter of 2007 to 1.97 in March of this year. That is to say, 760,000 jobs have already disappeared, reducing its weight in the economy to 10%. In Europe, this figure is 7.5%, so building could lose another 500,000 jobs by the first quarter of next year.
The Swiss bank added that as a result of the aforementioned, the government fiscal situation has deteriorated, as it has subsidised work schemes to revive the economy. Moreover, it has suffered lower revenues as well due to lower contributions to the Treasury. However, UBS believes that the Government has ample room to manoeuvre because the debt burden is still low and because the level of taxation is low compared to other European countries. However, they qualify this saying that the State has little capacity for new large stimulus packages due to the huge public sector deficit.
The price of houses
Regarding the real estate sector, UBS says that in late 2007, Spain was the country with the more overvalued house prices in Europe. It amounted to 55%, followed by Ireland, with about 30%. For the bank, the situation has not changed much since the prices of homes have only fallen by 6.5% from the peak.
The bank says that this market behaviour is logical because sellers do not want to dispose of assets if it is not at an attractive price. This attitude leads to a collapse in the number of transactions, which are ever increasing supply, which results in a longer fall of the house prices. According to their estimates, this fall will be at least 20%.