Given this environment, the forecasts from Sebastián and Torassa are cautiously optimistic. In 2008, notes Sebastián, "the Ibex 35, the main index on the Spanish stock exchange, will rise to about 17,000 points; the stars on the exchange will be the big companies -- electricity companies, banks, construction and telecommunications. Those companies that are better positioned to take advantage of a difficult situation are the ones that have size and liquidity, and are well diversified."
Regarding the liquidity crisis, "there are reasonable doubts about whether the worst has passed or it is about to come, and we'll get some answers when companies report their results for the third quarter," notes Torassa. In the international arena, "the credit crunch will come to an end when companies are able to determine the true scale of the problem and its victims. Meanwhile, suspicions will spread to all financial institutions, which will be paying for the sinners."
The main problem for 2008 is to figure out how far the repercussions will spread from the slowdown in the housing market, which has been the principal engine of Spanish economic growth in recent years. "If the decline in the volume of activity in Spain does not lead to any deterioration in the labor market beyond a net loss of 210,000 jobs," says Sebastián, "then it will be possible to recover."
For all that, the first week of 2008 brought data that is not very encouraging. Spain's inflation rate was about 4.3% in December, the highest rate in a decade. In 2007, unemployment increased to 5.2% over the previous year, and the consumer confidence index fell to historic lows. Pampillón warns that these numbers can generate what is known as the "savings paradox." When there is slower growth and more unemployment, "people consume less and save more, preparing themselves for bad times. This decline, in turn, depresses the economy; families spend less and companies sell less and produce less. They also get rid of workers to compensate for the decline in sales and production. Things get worse as a result of this supposedly virtuous behavior." In that kind of situation, it's no wonder that the consensus forecast for growth in Spain in 2008 is about 2.8%, Pampillón notes.
As for the political arena, Spain will hold its general elections in March. "Two of the big issues will be [low] productivity and the lack of competitiveness," Torassa notes. "Regardless of which party wins the election, the Spanish government will have to make these topics a priority on its agenda."
China: No Signs of Cooling Down
China is hot, and shows no significant signs of cooling down in 2008. Its growth rate clocked in at 11.5% for the past year and its stock market has been one of the world's best-performing markets over the past 12 months, with an average price/earnings ratio of 50.
"The U.S. recession next year is almost a done deal," suggests Andy Xie, an independent economist and former managing director of Morgan Stanley's Asia/Pacific economics team, in a recent speech in Beijing about China's economy in 2008. Though many commentators stick to the old adage that "when the U.S. sneezes, the rest of the world catches a cold," Xie believes that the outlook for emerging markets remains robust despite a potential recession in America. Thanks to Alan Greenspan, he adds, emerging economies nowadays are flush with cash.
What are the economic consequences for China's export-led economy? "The Chinese are going to suffer," Xie predicts. "Whereas in the past, the U.S. used to absorb Chinese savings and products, it will now want to turn the tables and export to China. "It's going to be an enormous challenge for us. Next year is the first year of this new world."
Most Popular Stories
- American Airlines, US Airways Complete Merger
- ACA Delay Stresses Small Businesses
- Unemployed Wait as Lawmakers Debate
- Questions Remain in Jenni Rivera's Death
- General Dynamics Plans 200 New Jobs in N.M.
- Dell Offers Undisclosed Number of Employee Buyouts
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Harley Issues Motorcycle Recall
- Auto Dealer Builds Big Solar Project
- Authorities Close to Deal with JPMorgan Chase over Madoff Response