Because unemployment will continue to worsen, it is necessary to complete pending reforms and make the most of recent economic momentum if Spain wants to get out of the crisis. Wall Street made history this week as the Dow Jones topped its historic high and markets looked like they were getting past the sudden collapse that struck back in 2008.
Ben Bernanke, Chairman of the United States Federal Reserve, is injecting 85 billion dollars per month into the United States economy until employment improves, which is affecting stock prices globally and driving growth in the US. Jobs figures published by the Obama administration yesterday were also encouraging. The unemployment rate dropped from 7.9% to 7.7%. In February 236,000 jobs were created compared to the forecast of 195,000.
US stock market euphoria spread to Europe and drove up Spain's Ibex and France's CAC, which both broke upward resistance. The Spanish stock market is having its best run since 2007 and could struggle to break a new high, which is going to increase fixed income prices. Analysts are talking about a stable upward trend that shows no signs of reversing, although we could see some downward movement if circumstances lead to that result. But overall, are we finally seeing signs of recovery in Europe? And Spain in particular?
The renewed confidence that investors have in Spanish debt is another positive sign. Plus, the Spanish risk premium has slowly and continually fallen, closing at 323 basis points yesterday. This decline, which will continue for the next several days, could create a 250 basis point spread between Spanish and German bonds by the middle of the year or perhaps year end. Luis de Guindos himself forecasted that the risk premium would reach 200 basis points.
That figure will signify that the crisis is finally over and will obviate the need for a bailout, because it will open the door to reasonably-priced financing, help credit flow again and boost corporate investments.
The next questions: when will the real economy start to show signs of recovery? When will layoffs stop and hiring start? The January Encuesta de Población Activa, Spain's survey of its working population, showed that six million workers are jobless and five million people filed for unemployment at local offices in February. The trend is clear: jobs are still being cut and the unemployment rate will reach 27% sooner than later. A new wave of layoffs is expected for the coming weeks (more than 35,000 will lose jobs, and the number of ERE payments doled out by major companies will double the 2012 level) for sectors that have not seen cutbacks up until now such as the construction industry and public works, tourism and banks. These figures show that the Spanish economy is still struggling to create new jobs and that cutbacks will continue. FCC, Iberia, Orizonia, Aena, Vodafone, Bankia and Novagalicia Banco are some of the companies facing near-tern restructurings.
In Spain, the crisis hit jobs the hardest, and this is the area that will require the longest time to recover. The government will possibly break this trend for future recessions by committing to deep labor reforms. The EU and Spanish businesses have backed these measures. The effect that US stock markets had on Spanish stocks shows clear signs of recovery for the first time since 2010. These signs will become even more evident as the year progresses, although companies and workers will not feel the effects immediately.
Now is the time to complete reforms nationwide in order to take advantage of surging markets and finally get out of this long crisis.
