The Spanish economy could live "a lost decade of stagnation", according to the NYT
June 11, 2018
The absence of prospects for growth of highly indebted companies could lead Spain to live “a lost decade of stagnation, Japanese style,” according to information published Thursday by the New York Times .
The American newspaper analyzes the economic situation of ACS , Florentino Pérez’s company, which considers the best example of the economic crisis that the country is going through.
“In a country with one of the highest levels of private debt in the world , few companies have a greater burden on their shoulders than the ACS Group, a global construction giant whose debt has become a mirror image of its own financial war, more and more serious, that Spain is living “, say its author.
The Spanish economy is trapped in a spiral of austerity and deflation ACS debt is “twice the size of the value of the company in the market.” For that reason, the New York Times assures that “ACS is in the middle of a frantic campaign to sell the assets and be able to pay its debt in the environment of a Spanish economy trapped in a spiral of austerity and deflation.”
The newspaper adds that the ” severe cuts by the Spanish government of the budget and its depressive effect on the economy have led foreign investors to sell Spanish shares and bonds en masse”, raising the risk premium and interest to almost 6%.
But economists now say that one of the biggest threats to Spain could well be “the lack of growth prospects” of highly indebted Spanish companies . And they warn that as these companies cut back on investments and tend to get rid of assets as well as jobs, the result could be “a lost decade of stagnation, Japanese style.”
Spain, acknowledges the article, “has a relatively low proportion of public debt (70%), compared to 165% in Greece or 120% in Italy.” However, according to a McKinsey report on global debt, the newspaper adds that the debt of the private sector in Spain is “134% of GDP” , above any major economy in the world with the exception of Ireland, Japan and Great Britain
“The problem in Spain is not the public debt, it is the debt of the private sector,” an expert in Spanish economy assures the newspaper, for whom ACS exemplifies perfectly how the current situation has been reached.
Companies have stopped investing
Under the direction of its “ambitious president” ACS, like many other companies in Spain during the recent boom, “was stuffed with cheap debt “, seeking to diversify by buying large shares of capital in companies in Spain and elsewhere . In a bull market, this network of cross holdings through bank loans can sustain a huge appetite. However, when the assets that support these debts fall and also the loans that policy does not hold.
“It’s a very bad time for these companies,” according to an expert in Spanish multinationals at the Wharton School of the University of Pennsylvania. “The government is no longer investing in infrastructure, municipalities have stopped paying their creditors and companies are in constant need of refinancing their banks, so they have to get rid of their possessions to get cash.”
The problem in Spain is not the public debt, it is the debt of the private sector ACS , Construction Activities and Services, it is one of the largest business creation services in the world. Its range of projects from the construction of metro stations in Manhattan and management of toll roads in Florida, to the collection of waste in France and construction of wind farms in Brazil.
However, for the growing legion of investors who have bet against the company through the sale of their shares , ACS continues to have excessive exposure to the construction sector, in crisis in Spain, which fuels its bearish outlook.
“The debt of this company is out of control, ” an analyst tells the newspaper. The decline in the value of its shares has accelerated in recent weeks. “The price has dropped by 27% in April alone,” recalls the NYT.
Another expert insists: “In Spain, companies and households are paying the debt crisis “, to later warn that Europe is entering the same type of recession that affected Japan in the 1990s. that “the economic collapse” of Spain threatens to be a “semi-permanent” phenomenon and not a cyclical one.
“Jobs are lost, companies have stopped investing and assets have collapsed -both housing prices and the stock market-, a situation that is aggravated, according to the NYY,” by the austerity promoted by the government ” .
- Florentino Pérez
Florentino Pérez, president of the ACS Group. (ARCHIVE)
“> Florentino Pérez