ETF Trends
ETF Trends

Spain’s economy and exchange traded fund (ETF) are sinking. The problems keep piling on and they’re weighing down growth. What’s it going to take to get this nation back on the prosperity track?

Spain’s problems are only accumulating, with rising unemployment, low productivity growth, troubled savings banks and shaky public finances, comments Mike “Mish” Shedlock for HoweStreet.

  • Factoring in a severe correction in household consumption and high debt accumulated by the private sector, the Bank of Spain has estimated that the economy will contract 0.4% this year and expand 0.8% in 2011, according to RTTNews. The International Monetary Fund (IMF) forecasts Spain’s growth to be less than 1% in 2011. The Bank also commented on the government’s plan to bring down the budget deficit to under 3% of GDP by 2012 from the current 11.3% as “very ambitious.”
  • The government, on the other hand, projects an even more optimistic 1.8% GDP expansion in 2011, reports Emma Ross-Thomas for BusinessWeek. The Spanish government also expects deficits of 9.8% of GDP this year and 7.5% in 2011, but the Bank calculates a budget shortfall of 10.2% this year and 8.9% in 2011.
  • The Central Bank calculates that unemployment will increase to 19.4% this year and 19.7% in 2011. The government forecasts 19% this year and 18.4% in 2011.

Despite figures like these, the government is loath to step in with radical measures and that has observers like Lorenzo Bernaldo de Quirós, an economist at Freemarket International Consulting, concerned that the country will experience a “lost decade, like Portugal or Japan.”

Ángel Laborda, an economist at FUNCAS, says that more tax rises and spending cuts are needed if the government wants to achieve its 3% deficit target by 2013.

What’s Spain doing to buckle down and address the increasingly serious issues facing its economy? A bill, now before Parliament, may be the ticket. The 10-year reform plan has some big objectives: weaning the country off its construction dependence, creating broader growth that’s more sustainable and tighter supervision of its financial sector.

For more information on Spain, visit our Spain category.

  • iShares MSCI Spain (NYSEArca: EWP): Financials are 43%

  • SPDR Barclays Capital International Treasury Bond ETF (NYSEArca: BWX). Spain is 4.6%; this fund was recently hit by the issues facing several European countries.

ETF BWX

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.