The neverending crisis

Forget about the green shoots, the flickering light at the end of the tunnel and the improvement in the sick man's health. The second half of 2010 poured cold water on the hopes of Spanish business leaders, who in July of last year were expecting a slowdown in the deterioration of the economy and a smaller dent in their revenues by the end of the year.

But things did not turn out that way (nine out of 10 entrepreneurs now believe the economy either worsened or stagnated), and this realization has been a blow to their spirits: four out of five business leaders confess they expect no improvement whatsoever over the next six months, and 51 percent believe Spain will need outside help to pull out of the crisis.

Four out of five entrepreneurs expect no improvement in the next six months

Fifty-one percent believe Spain will need outside help to pull out of the crisis

No major changes in employment rates are expected between January and June

Investment and pre-tax earnings did perform better in the second half of 2010

In the last few months, Prime Minister José Luis Rodríguez Zapatero has embarked on several major reforms affecting the job market, the financial markets and pensions, and he has also implemented drastic budget cuts - yet the business world's confidence in the Spanish leader is at historical lows, according to the most recent business survey, published in the Negocios supplement of EL PAÍS. The survey was conducted by Deloitte, which contacted 256 firms with a joint turnover of over 1 billion euros and a combined workforce of a million employees.

The evolution of the Spanish economy in the second half of 2010 was negative for 58 percent of businesses (20 additional points above the forecast in the previous survey). Only nine percent of respondents think the economy improved between June and December.

These opinions coincide with official figures released in recent days, such as the negative growth of the Spanish economy in 2010 (by one tenth of a point), despite the fact that GDP grew 0.2 percent between October and December according to the Bank of Spain. There was also the news that the Consumer Price Index posted an annual rate of 3.3 percent in January, three-tenths of a point more than in December, because of hikes in electricity rates, food and non-alcoholic beverages, according to the National Statistics Institute. And then there is the deficit in the current account balance, which reflects revenues and spending on trade in goods and services, net factor income and net transfer payments - this deficit was 44.6 billion euros in the first 11 months of 2010, according to the Bank of Spain.

It is not for nothing, then, that in this latest survey fully 94 percent of entrepreneurs feel it will be necessary to draft new adjustment measures and structural reforms in the first half of 2011. Most business leaders think the government's deficit-reduction goals will be met this year, yet over half also believe that Spain will not meet the Stability Pact and reduce its public deficit to less than three percent of GDP by 2013. Finally, the Zapatero administration's handling of inflation gets the worst rating by business leaders in the second half of 2010, compared with the first half.

In this scenario, production, turnover and employment figures in the second half of last year displayed the same behavior as the previous half, even if they did not reach the expectations anticipated in July. Around 42 percent of those surveyed increased their production and sales in both halves, but those who registered a drop in both made up around 32.5 percent in the second half of the year.

The main causes of this slowdown in production and turnover were the same as before, according to company managers: a drop in domestic demand and a downturn in international markets. Forecasts for the first half of 2011 talk about a slight improvement on both fronts.

Employment also remained at similar levels during both halves, although the number of companies that laid off workers in the second half grew nearly two points to 43.4 percent. No significant changes are expected in the evolution of employment between January and June of this year. Most participating employers (49.5 percent) think that the number of employees will remain unchanged over the next five months. Around 15.5 percent of companies expect to hire more workers and 35 percent plan to fire staff.

These results and expectations are in line with data released 10 days ago as part of the Working Population Survey. This survey shows that unemployment grew by 370,100 people in 2010, an 8.5-percent rise from 2009, for a total of 4,696,600 people out of a job, which makes for a 20.33-percent jobless rate. This is the highest rate since the second half of 1997, when it reached a historic high of 20.72 percent.

Despite the general feeling of pessimism in this latest edition of the business survey, a few indicators did perform better in the second half of 2010. One is investment, which grew in 53.5 percent of surveyed companies, and earnings before taxes, which grew at six out of 10 businesses that took part in the survey.

Regarding their own companies and industries, respondents also expressed disappointment at not meeting their earlier expectations. Back in July, only a third expected their sector to fare worse than it already had, yet by the end of the year over half said that deterioration was more intense than they had thought possible.

Broken down by sectors, and in relation to macroeconomic indicators for 2011, the most optimistic views focus on tourism revenues. Three out of every four respondents think these will post favorable growth - an opinion backed by data released a few weeks ago by Industry, Tourism and Commerce Minister Miguel Sebastián. He said that Spain received 53 million tourists in 2010, a 1.4-percent increase from 2009.

The other side of the coin lies in residential construction, public works contracts and vehicle registration, sectors in which nine out of every 10 respondents feel pessimistic about growth possibilities. The latest official figures seem to support these views. The construction business association Seopan said that bidding for public works contracts fell 32.2 percent in 2010; while auto makers and dealers reported a 3.5-percent drop in car registrations in January.