THE ACUTE shrinkage of the residential construction industry in Spain, and the credit crisis, are the principal forces behind the intense deceleration of the Spanish economy and the corresponding rise in unemployment. Daily statistics and predictions from international institutions confirm that the housing market is going through a profound adjustment, and there now only remains a certain degree of controversy about the speed and intensity of this adjustment.
On Monday the European Commission reduced its forecasts for Spanish growth this year and in 2009 to 2.2 percent and 1.8 percent respectively, against the 2.3 percent announced by Pedro Solbes for both years - due precisely to the freefall of housing prices in recent months. This forecast is considerably more pessimistic than that of the Spanish Economy Ministry.
Joaquín Almunia, the European Economy Commissioner, calculates that activity in the Spanish real estate sector will diminish by as much as a third during the next three years, and that this process will raise the unemployment rate to 10.6 percent in 2009.
Almunia's predictions are founded on reasonable arguments, and seem a logical consequence of the sharp shrinkage of an activity that, during the last eight years, has significantly contributed to growth and employment in Spain. But they express only one of the possible courses the deceleration may take.
The unforeseen rapidity with which the Spanish housing market is falling seems to indicate that it may well bottom out earlier than the most pessimistic forecasts say it will. And while this circumstance will not spare the Spanish economy a high cost in terms of employment, it does hold out some hope for a moderate recovery of growth by the middle of 2009.
The European Commission itself notes in its report that the adjustment of the housing market in Spain is likely to stabilize at around 450,000 built housing units per year, while the annual rate of growth in the last seven years has been over 800,000. At the present rate of deceleration - the purchase and sale of houses diminished in February at a year-on-year rate of 24.4 percent, after falling to 27 percent in January - this lower limit might be reached in early 2009. The construction industry will touch bottom probably between the third and fourth quarters of this year, and it is at that time that we are likely to see the worst rate of unemployment.
This is only one other probable scenario, which does not contradict the realistic description offered by Brussels. We have to keep in mind that the credit crisis stemming from the United States has been distorting our perception of the duration of the deceleration that is affecting both Spain and the European Union as a whole. Perhaps by the beginning of 2009 the financial entities will have cleared away a great deal of the confusion, contamination and distrust caused by junk mortgages. Then it will be possible to estimate to what point the worsening economic situation is going to decline. Meanwhile we had better fasten our seatbelts to weather the turbulence to come.
El Pais