2009 September 26 Saturday
Spain Unemployment Rate Heading to 25%?

A Madrid research group expects Spain's economy to contract 11% from peak and unemployment to reach 25%. Idea: vacation trips to Spain to see a depression just like grandma lived thru back in the 1930s. Albeit grandma didn't have a welfare state to fall back on.

The Madrid research group RR de Acuña & Asociados said the collapse of Spain's building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11pc of GDP. The grim forecast is starkly at odds with claims by premier Jose Luis Zapatero, who still says Spain's recession will be milder than elsewhere in Europe.

Spain is going to raise the national value added tax (VAT - like a sales tax) by 2% to pay for welfare benefits for all those unemployed. The Spanish government more optimistically expects unemployment to peak at a mere 18.9%. Time for an extended siesta.

The government expects the Spanish economy, Europe's fifth-largest, will contract by 3.6 percent in 2009 and return to growth by the second half of next year.

But it expects the unemployment rate will rise to 18.9 percent in 2010 after closing this year at 17.9 percent.

Spain went thru a housing bubble much like California's and has a huge overhang of unsold properties. Spain also has a European welfare state with the aforementioned VAT that enables government to achieve a size that California liberals can only dream about. That welfare state puts Spain's unemployment at a higher starting point.

Economist Paul Krugman expects the US unemployment rate still have over a year of increases in store. Though the possibility of America catching up with Spain in terms of increased leisure time still seems low.

"(U.S.) unemployment will peak in early 2011 ... certainly staying very high and possibly rising all next year," Krugman told a business meeting in Slovenia, adding his forecast was based on data from previous U.S. economic crises.

But I expect Peak Oil will prevent a sustained recovery.

If unemployment is going to continue to rise thru early 2011 the eventual peak could be quite high. The US overall is at 9.7% unemployment. But some areas are much higher. Michigan unemployment is already at 15.2% with Nevada at 13.2% and California at 12.2%.

Japan is experiencing deflation. Why buy when things will cost less in the future? Why buy when you might lose your job?

In July, the International Monetary Fund said Japan may face deflation through 2011. The unemployment rate rose to a record high of 5.7 percent and the core consumer price index dropped at an unprecedented pace of 2.2 percent, heightening deflation concerns.

Japan's economy might start growing very slowly in 2010. Then again, maybe not.

The economy will expand 0.8 percent next year after contracting 6 percent in 2009, according to median forecasts, putting assets in the world’s second-biggest economy at a disadvantage to those in countries with higher borrowing costs.

Japan has a government debt of about 200% of GDP. This has got to cause serious problems at some point. With a shrinking population and stagnant economy the cost of paying for that debt could spike. How is Japan going to handle the extended economic contraction that Peak Oil will bring? They seem ill-positioned for it.

Share |      By Randall Parker at 2009 September 26 12:25 PM  Economics Business Cycle

James Bowery said at September 26, 2009 3:11 PM:

It is pretty obvious that the parasites are either poorly adapted or have a history of horizontal transmission as evidenced by their continually inhibiting taxing net assets and promoting taxation of economic activity -- even when its obvious that its the only way to salvage their economies.

I suspect a long history of horizontal transmission.

Trent Telenko said at September 26, 2009 4:24 PM:

If Krugman's unemployment projections are correct, Democratic Congressmen from red state and purple state districts that got elected in 2004, 2006 & 2008 are in very deep trouble. There are 66 such seats and it will take 40 to flip the House.

Worse, there is a distinct possibility of a worse than 1994 Democratic turn out versus Republican turn out disparity -- given Obama is not at the top of the ticket to up black turn out -- that will hit Democrats down ticket very hard. Particularly if the elderly voters turn out 65% to 35% against Democrats as some speculation I have heard from Karl Rove indicates might happen due to Medicare Advantage getting destroyed by Obamacare.

Democratic Party locking in 2004-2008 gains due to the 2010 census redistricting go in the toilet if they lose a lot of state houses as well as Congressional seats.

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