by Bing Xu and Paul Giblin
MADRID, Dec. 9 (Xinhua) -- The year 2009 has been another difficult year for the Spanish economy, which has suffered the effects of the global crisis more than its European Union (EU) neighbors.
While most of Europe began its recovery in the second half of the year, the Spanish have continued to witness a decline in their economy.
The third quarter of the year saw the economy shrink by 0.3 percent, indicating a slowdown in the decline, but the turnaround is unlikely to happen until the early months of 2010 at the earliest.
Jose Manuel Gonzalez Palermo of the European Central Bank believes the delay is down to various factors.
"There is debt, the weight of construction, the levels of education of unemployed and deficiencies in the labor market, which needs to be made more flexible," he said.
Unemployment continues to be a major problem and Spain now has one of the highest unemployment rates in the eurozone.
At the end of November, 3,868,946 people were out of work in Spain, an increase of more than one million over the previous 12 months. EU statistics agency Eurostat confirmed that 42.9 percent of Spaniards under the age of 25 are currently out of work.
According to IMF's estimates, unemployment could reach almost 20 percent by 2010.
Having a lower number of people in work as well as higher numbers claiming unemployment benefits has caused problems for Spain's social security system.
The fiscal deficit is estimated to reach 10 percent of GDP by the end of the year. Two years ago, the fiscal surplus registered in the country was 2.2 percent.
Greater job instability has also led to a decline in private consumption, which has fallen for seven consecutive quarters since the end of 2007. This is in part due to a lack of public confidence in the economic situation, which has caused a rise in precautionary savings.
Due to the plunge of economic activity, inflation fell to a record low of minus 1.4 percent in July 2009, but has slowly been increasing since the summer and forecasts predict a moderate rate in the near future.
The Spanish government has taken measures to soften the impact of the global financial crisis. The most visible is the Plan E, which applied measures to support families and companies and provide job opportunities.
Plan E has seen a series of public works projects taken in a host of Spanish cities and is calculated to have safeguarded or created around 400,000 jobs.
Measures promoting the service sector, renewable energy and high-tech industries also have been implemented to build a new viable growth path.
Year 2009 ends with the Spanish economy still in the grip of the recession, although that grip is clearly loosening. However, there are factors that promote optimism for the coming months.
The Spanish banking system in general appears to have weathered the storm well, although some small savings banks need to be reorganized due to problems with asset quality and liquidity.
Meanwhile, the service sector also has maintained itself reasonably well during the past 12 months.
Domestic demand also looks set to recover thanks to low interest rates and government stimulus packages.
That will hopefully lead to a positive feedback with increased consumer confidence, a return to moderate inflation levels and perhaps even a decline in unemployment levels by the end of 2010.
Special Report: Global Financial Crisis
