Miguel Fernández Ordóñez: Overview of the Spanish economy in 2008 Address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Governing Council of the Bank of Spain on the occasion of the presentation of the Annual Report 2008, Madrid, 16 June 2009. *  *  *  Ladies and gentlemen, The year 2008, the subject of the Annual Report I submit today to the Council, saw strains on international financial markets heighten and turn into a global financial crisis which ultimately triggered a widespread loss of confidence and an unprecedented worldwide economic recession. The financial tensions pushed a large number of banks from a broad range of countries to the brink. And they have caused losses in the global financial system which, with all the due caution any estimate calls for, amount to trillions of euro. The crisis affected all financial markets, with some such as the asset-backed securities and interbank deposits markets brought to a grinding halt. The habitual stress indicators surged to all-time highs around October and remain at high levels despite the improvement in recent months. Clearly, the globalisation conducive to the growth of finance in recent years has also been instrumental in the swift and simultaneous spread of tensions, seeing them extend further.
The outlook for the Spanish economy points to declines in GDP over the rest of the year that should lead to a significant fall in 2009, albeit slightly lower than is forecast for other European countries. It is highly likely that the worst of the contraction has already passed, and that the intensity of the restrictive impulses will begin to diminish in the second half of the year as the broad range of measures implemented progressively deploy their effects. As a result, the fall in activity in 2010 is expected to be less pronounced. The course of employment in this scenario, in any event, is a cause for concern; despite the somewhat more positive signals given by some recent indicators, linked in part to seasonal factors, job destruction may run for some time and the unemployment rate may continue further on its rising trend. The imbalances built up during the long expansionary phase, in the form of the inflation differential and the resort to external financing, are being swiftly reabsorbed, providing an unquestionable source of relief in the global outlook described. Yet this rapid correction is occurring on the back of an excessive brake on activity, entailing major costs in terms of job destruction, higher unemployment and the deterioration of the productive fabric.