Spain’s Economy Hits Reverse – IMF Clueless


If making understatements was an official sport in the Olympic Games, the International Monetary Fund (IMF) just won the gold medal.

According to their brains-trust, ‘downside risks dominate’ for the Spanish economy.

Have they been asleep? You have to wonder.

To quote Todd Hockney from the film ‘The Usual Suspects’:

‘Did you put that together yourself, Einstein? Do you have a team of monkeys working around the clock on this?’

A year-10 economics student could tell you the Spanish economy is in real trouble.

The unemployment rate has been above 20% for two years now. It was 24.6% at last count, and just keeps getting worse. Youth unemployment is double that. Spain is creating a whole new generation without a working culture, which has massive long-term effects on a society…

Spain’s economy is in reverse again. The last three quarters were negative – and getting worse. This is what Spain’s quarterly economic growth rate has looked like in the last five years. It’s a disaster.

Spanish Economy – Back into Reverse Again

It has effectively had no growth for five long years. And as the IMF says, ‘downside risks dominate’? Oh really IMF…you reckon?

This is Europe’s 4th largest economy we’re talking about, and it’s dragging the whole region down. Europe was, until very recently, China’s biggest customer – so that means fewer exports, which in turn effects Australia’s economy. Maybe globalisation wasn’t such as good idea after all.

In comparison, during 2010/2011, Germany managed to notch up a growth rate of 2.1%. France got up to 0.9% at one point. Even Spain’s relaxed Mediterranean cousins across the water in Italy managed to grow at 0.8% for five minutes. Yet the best pace that Spain’s economy moved at in the last half-decade was 0.3%.

It’s hard to believe, but until a few weeks ago the IMF was calling for Spain’s economy to grow next year.

The IMF Completely Clueless

Then the IMF’s team of monkeys changed their minds on the 16th July, telling us that just maybe…Spain’s economy would contract again next year at -0.6%.

But they weren’t done. They then revised this AGAIN last week, dropping it further to -1.6%. My Aunt Bessie could have probably figured that out for them, and saved them all that hassle.

Having them throw THREE different predictions at us in the space of two weeks tells you everything you need to know … The IMF doesn’t have a clue.

And no surprise, all is not well at good ship lollipop. Reuters reported last week that one of the IMF senior economists resigned in protest recently, accusing the IMF of ‘failing in the first order‘. If his job is now free, I should put my Aunt Bessie up for it, and see if she can sort things out.

Meanwhile, over at the European Central Bank (ECB), we now have its boss, Mario Draghi, challenging the markets to a duel.

Or should that be duet? You may have heard he threw the gauntlet down saying:

‘[he promised] to do whatever it takes to preserve the Euro … and believe me, it will be enough’.

Nice rhetoric, but what’s the plan Super Mario?

We may not have long to find out. The ECB meets on Thursday night.

It sounds like he’s getting ready to pull out the fabled ‘bazooka’. Part of his genius-master-plan will likely revolve around some form of balance sheet expansion, or covert money printing (QE). He’s like a union leader organising strikes. It’s the only trick in his book, and he just can’t help himself.

At the same time we have the Fed meeting for the next few days. When the US growth figures came in at a ropey annual rate of 1.5% last week, the market rallied in anticipation of more QE from the Fed.

Like Pavlov’s dogs, the Fed has got the market running round again trying to anticipate when it will get its next bowl of Scooby-snacks.

One place getting ready for this is the precious metals market. Gold has lifted its head up recently, and gold stocks are finally starting to move.

Dr. Alex Cowie
Editor, Money Morning

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Spain’s Economy Hits Reverse – IMF Clueless