Editor’s note: This article was first published in November 2011, and presents forecasts for 2012 made in November 2011: Bank of America on a eurozone recession and Germany at around -0.5% growth, and BBVA Research on Spain with unemployment above 22%.
Bank of America‘s analysts are clear about it: Europe will enter a new and severe recession, without any doubt. On top of this study, which shows a sharp contraction in consumer spending within the eurozone, there’s the fact that a supposedly healthy economy like Germany’s will also enter recession at the end of this year, with negative growth of around 0.5% forecast.
Meanwhile, BBVA’s research department has also painted a very bleak picture for Spain, in a study that points to a new contraction in consumer spending in the country. Both studies find that Spain could stagnate during the first half of 2012 with an unemployment rate above 22%, double that of the other eurozone economies. We think these figures fall short, because other factors haven’t been assessed and the incubation time of a crisis that, far from improving, keeps getting worse over time hasn’t been calculated correctly.
These figures don’t take us by surprise, because we knew that sooner or later they would come to light (financial chaos could arrive in 2012; Crisis in 2012: 6 of the 7 largest economies are growing at 0%). While these studies talk about a dire situation during the first half, with the possibility of growth from the second quarter, we think that during the first two quarters of 2012 there will indeed be a contraction in consumer spending and an attempt to contain a situation that will end up exploding from the second half onwards, because before the economy improves we will inevitably have to hit “rock bottom”.
With an economy still weighed down by the consequences of the property crisis, with house prices down 23%, and a banking system that will request an additional 60 billion to clean up balance sheets damaged by its property portfolios, we see no reason to think that the new crisis will end in the second quarter. Quite the opposite, considering that Spain won’t be able to meet its deficit target for 2012.
While there’s talk of an unemployment rate that could end up stalling at 22%, we could say that figure would be very optimistic, since some basic calculations point to an unemployment rate close to 30%, based on the outlook we’re seeing.
What isn’t being taken into account is that while Spain is fighting the crisis by trying to revive trade, a type of commerce that needs no employees is growing in parallel (this is a complex topic to explain, and we promise to cover it in a later article). The fact is that 2012 is expected to bring a chain of layoffs and a complete freeze on hiring. To give just one example, the new banks are planning to cut 20,000 jobs in Spain.
It may sound repetitive, but the economy’s problem is very simple: the world has a “fictitious” debt that we have to pay with money we don’t have, so what we need isn’t good managers but good magicians.
Featured image: Easterwood96, CC BY-SA 4.0, via Wikimedia Commons.
