Spanish tourism feels the heat

It's Spain's number one industry and main source of unemployment so it is merciful that tourism has held up well during the crisis.  But is Spanish tourism about to go into reverse?

Probably not, despite a fall in tourist numbers announced recently by researchers FRONTUR.  Overall tourist numbers were down 3.2% in October when compared to last year.

But October is not a key month for the industry and the same survey recorded an increase overall for the first 10 months of the year (total numbers up a healthy 3.1%).

Spain is a tourism superpower with only France attracting appreciably more visitors from overseas every year.  Spain gets twice as many visitors annually when compared to the UK for example.   This is unlikely to change rapidly - Spain has the infrastructure, the regulars (like those that visit their holiday homes or relatives) and a solid brand based on decades of delivering relatively cheap "sun and sand" holidays for families.

But on the flipside Spin needs tourism more so any signs of weakness are a big worry.  Delving into the recent report does suggest a few causes for concern.

There are some big regional variations with some regions, like Catalunya and the islands, doing well but others such as Andalucia (down 7%) struggling.

 Andalucia and its Costa del Sol is an area I know well and I have been a frequent visitor to its hotels and resorts.  It is a big generalisation but I think it represents a weak link in Spanish tourism.  There are a lot of very average hotels and beaches and the Costa del Sol seems to be relying on basic packages and low prices to attract families and those on a budget.  There is not a whole lot to appeal to the choosier, better off segments of the market.



And then there is the question of where all these tourists come from.  Here too the chart suggests a cause for concern:

The UK accounts for fully a quarter of all Spain's overseas visitors, easily the biggest market.  The Brit numbers are down on the month and stagnant for the year.

Maybe that's because of a lack of disposable income in Britain, or perhaps down to the higher flight prices and taxes.  The worry is that Spain has become a bit unfashionable in Britain given all of the alternatives available in more glamorous and interesting settings.

Whatever the cause it is clear that Spain needs to work at maintaining, never mind growing, its tourist base.  The cheap and cheerful sun and sand holidays won't do it.  Marketing more heavily outside of Europe and going upmarket might.  And that is exactly what the tourist ministry is pushing for.


From our website What to do if you get a letter from the Spanish tax office

Mendes is the latest British hero to light up 2012

It's a bit premature for annual reflection but I already know my abiding memory of this year will be: the union jack.

In Britain 2012 was the year when every business and organisation decided that flag-based marketing was the way to go.   Is there any product or service that has not been flogged by wrapping it up in a union jack?

The reason is pretty obvious.  An outpouring of patriotism and national pride as a result of the Diamond Jubilee, running a successful Olympics and numerous sporting successes.

The British Sports Personality of the Year has been a hotly discussed topic for months because the competition is so intense: Wiggins, Murray, McIlroy et al.  Lord Coe and Dave Brailsford are being hailed as visionary heroes.

The new Bond film, Skyfall, has kept the feelgood factor going a bit longer.  I enjoyed the film enormously despite not being a Bond fan.

It's a rare critical and popular smash which triumphantly brings the legend back in front of a worldwide audience just weeks after the inspired Olympics opening ceremony stunt with the Queen.

Not only does the film reflect the usual Bond traits of insouciance in a crisis, cool charm and dry humour that we like to think of as typical of the British at their best, it is also set mainly in Britain (London and Scotland). The stars are also a reminder of another thing we have to be proud of: great actors. Besides Craig, Judi Dench and Ralph Fiennes are very good.

The theme song is no classic - more a homage to the 60s classics that made Bond music as much loved as the films.  But it is good and is another reminder of a British success story: Adele is comfortably the world's most successful music artist of the year as she was in 2011.

I also defy anyone to not feel a stirring of emotion when the iconic Aston Martin makes an appearance even though it does stretch plot credulity somewhat (how old was Bond when he got it?).

The success was not inevitable.  Bond films have fallen flat before, as recently as 2008's Quantum of Solace.  It's not easy to make a film that works with the grain of the Bond legend, includes all the trademark elements and also makes for a satisfying, coherent and modern film in its own right.

That Skyfall does that and more is a credit to the director Sam Mendes. I shall be looking for him in the end of year Person of the Year lists.



From our website: Spanish tax service for individuals

Stimulus doesn't work. Just look at Spain

As the stimulus versus austerity debate rolls tiresomely on, it is a good time to reflect on what government action did for Spain's economy after the crisis hit four years ago.

Spanish unemployment hit 25% recently.  The government is bankrupt, the banking system bust and the economy is shrinking.  Only an ECB promise "to do all it takes" is preventing a slide toward default and chaos.

As with most Western countries the proximate cause of the crisis is the debt-fueled bubble that preceded it, with the property market at its core and low Euro interest rates enormously exacerbating the problem.

Unlike Brown's Britain, Spain did not compound the problem by running  a large government deficit during the boom years.  The Spanish government was running a surplus in 2007 and the public debt to GDP ratio was a respectable 36% so, according to Keynesian logic, the government was well-placed to rescue the economy from the effects of private sector deleveraging.

And the government has tried lots of stimulus in response to the crisis.  Between 2008 and 2010, before the austerity drive started, the government spent like a drunken sailor: national debt ballooned by more than €200 billion in two years (20% of GDP).

Super low interest rates sent mortgage costs tumbling and thus artificially boosted private incomes.  The government passed laws to allow people to defer their mortgage loans and escape foreclosures.  There were huge public works programmes and schemes to boost car sales (see Spanish car sale worst for 15 years).

If stimulus worked as expected these measures should have allowed the private sector to recover and allow the government to start withdrawing support and begin rebuilding its own finances.

But we are as far away as ever from a private sector recovery.  All those stimulus measures worked for a while but just postponed the day of reckoning.   Spain got no lasting momentum from those so-called boosts - they are just left with the debt.

Car sales are a perfect example of the futility of government action and the damage it can do in the name of stimulus.

Before the crisis hit Spanish car sales regularly topped 1m vehicles a year.  When the bubble burst predictably car sales crashed too, falling 18% in 2009.  The government responded with Plan RenoveE - a subsidy dressed up as a green initiative - and this programme did support increased sales while it ran.

But what good did it do?  Sales last month were 35,000, the lowest on record.  Year on year sales are down an incredible 37%.  The government is trying to revive the subsidy scheme even though it can ill-afford to and must know though that the only permanent effect will be to increase the national debt.

This is just one example.  The public work schemes helped some workers to stay in a job for a year or so but, now the money has run out and the government is cutting at all levels and raising taxes, the unemployment picture is worse than ever with no end in sight.

Arguably worst of all was the various policies to prop up the housing market.  Banks hid their losses for four years until the Bankia scandal showed just how close the whole system was to collapse (see Are Spanish bank accounts safe?).

Only then did the banks face up to their bad debts, begin liquidating and seeking new capital.  A few households might have escaped foreclosure for a time but the full force of "deleveraging" is now being felt and will be more severe than it would have been with an immediate clear out after the property boom ended.

Imagine if the Spanish government had adopted a different path in 2008: concentrated on economic reform instead of increasing public spending, cut out public sector waste, forced the banks to deal realistically with their bad debts and forsworn any quick fixes to help individual sectors.

Yes the immediate effects would have been drastic - a deeper recession, more foreclosures and probably worse public sector finances for a while.  But that was four years ago.  By now things would have bottomed out and there would be growth on the horizon instead of endless stagnation and self-defeating austerity.

Keynesians will read this and say it is the Euro that's done for Spain and it is unfair to blame government attempts to stimulate its way out of recession.  They are mostly wrong.

It is true that Eurozone membership has been a disaster for Spain but the damage was done by low interest rates during the boom not since (see Eurodoubters are being proved doubly right).  Since 2008 rates have mostly been set low to bail out Spanish debtors.  Spain does have an overvalued currency which is part of the problem but Spanish exports have actually been doing well, even now growing at double digit pace.  It is the efforts to end the recession with stimulus that have done the most damage.

When you see an American or British commentator trying to sell the benefits of government action to "fight" a weak economy, remember what has been done to Spain in the name of stimulus and reject them.




From our website: Changes to Spanish Tax Form 210