Forecasts for next year are divergent, and only the Spanish government maintains an optimistic view. Considering whether Spain is heading for a new round of recession, first we have to clearly define what a recession is. Technical recessions occur when an economy's growth (measured in real GDP) declines for three consecutive quarters. Therefore, Spain could enter into a recession if it sees negative growth ahead.
But what do the forecasts tell us? Looking at what most important national and international groups that create economic outlooks for Spain have to say, there is a wide divergence of opinion resulting from the various econometric models and survey techniques used. Roughly three views stand out: optimistic, realistic and pessimistic.
The Spanish government is the only optimist, and they have forecasted growth rates of 1.3% and 2.3% for 2011 and 2012 respectively. Corporate analysts offer a more realistic view. Prognostications from the IMF, OCDE, Funas, Santander and BBVA vary between around 0.7% and 0.8% for 2011 and 1.1% for 2012. The pessimistic view held by Goldman Sachs predicts a 0.7% rate for 2011 and a dismal -0.7% rate for 2012.
This is the behavior of year-to-year forecasts and, therefore, the expected trajectory of Spain?s economy. But if we want to know the current economic situation with more precision and know whether there will be a recession or not, we should turn to the variations quarter-to-quarter variations corrected for seasonality. If we do so, then available consensus analyst figures show a literal standstill of economic activity in the second quarter of 2011 (0% in the third quarter and 0.1% in the fourth) and slight increases throughout 2012 (predictions of 0.4%).
Also, Goldman Sachs notes in its latest report that the Spanish economy will suffer four consecutive quarters of contraction after the end of 2011, which would lead to a recession, technically speaking.
How should the forecasts be interpreted? In order to better understand what the numbers mean, it would be a good idea to review recent economic data. Activity indicators are weakening, unemployment is rising, inflation is dropping but consumption dropping, the national debt is shrinking but at an increasingly slow rate and financial indicators are deteriorating. The corrected view is not so optimistic.