Spain’s economy has shown no growth this quarter and in the pervious two quarters, it grew 0.4 and 0.2 percent respectively which means it will fail to meet the projected 1.3 growth projections for 2011.
To add to the woes, unemployment figures rose by 140,000 during September- totaling 5 million in a country of 47 million. 48 percent of those jobless are under 25 years old.
The combination of job losses and an uncertain future has resulted in people holding onto their cash, thus slowing down overall demand in the economy. These are signs that the government’s austerity plan is beginning to kick in.
The Spanish government is under pressure from investors and other eurozone governments to reduce its budget deficit. So a whole raft of measures have been enforced to ease the debt, including increasing the retirement age to 67, wage cuts for civil servants of up to 10 percent, labour reforms that have made it easier to sack workers. The health and education sectors have been particularly hit. Homelessness and poverty have shot up as banks re-claim bad loans.
Yet this is still insufficient for the global banks and investors who declare Spain still needs to do more to pay its debt. Economist Ellen says austerity is the wrong solution.
Despite its critics, the government maintains its on track in achiveing budget deficit targets by the end of the year.
It appears the austerity plans need to go deeper in order for spain to keep away from the red, and the government is prepared to do this in order to win over the markets, even if its at the expense of its own internal economy.