Spain, sucked back into the center of the eurozone debt crisis, is headed toward a financial crunch next year that may force it to seek international help, analysts warn.
Alarm has spread on the financial markets over Spain’s rising public debt, bulging deficit, fragile banks and a slide into recession at a time of soaring unemployment.
Investors pounced in the past week, forcing the government to pay higher borrowing costs at a bond auction and snapping up securities that pay out in the case of a default on sovereign debt.
“Despite rising Spanish bond yields and bond market jitters in recent weeks, Spain is not in any immediate danger,” IHS Global Insight economist Raj Badiani said.
Massive lending by the European Central Bank (ECB) at rock bottom rates to banks in the eurozone had secured Spain’s liquidity and mitigated the impact of Spain’s economic and fiscal woes, he said.
However, greater danger lay ahead.
“The risks are expected to intensify in 2013 with Spain battered by a crippling combination of a lingering economic downturn, challenging financing requirements, a labor market close to meltdown and a banking sector struggling to contain ever-increasing troubled real-estate assets,” he warned. “Indeed, the continued tensions in the banking sector, resulting from the deteriorating quality of its real-estate assets and domestic government debt holdings, could prompt the need for additional capital injections from the state or external interventions.”
Ultimately, the ECB could be forced to provide Spain with more protection than its current policy of buying government bonds on the market and offering cheap three-year loans to eurozone banks, Badiani said.
The challenges facing Spanish Prime Minister Mariano Rajoy’s conservative government are daunting.
It approved this year’s budget on April 30 that includes 27 billion euros (US$35.4 billion) in spending cuts and tax increases, determined to meet its targets to slash the public deficit from a runaway 8.5 percent of annual economic output last year to 5.3 percent this year and just 3 percent next year.
However, analysts say the task of meeting those targets will just get harder as Spain enters recession and with official forecasts that the jobless rate will rise to 24.3 percent this year from 22.85 percent at the end of last year.
Large annual public deficits have rapidly pushed up the accumulated public debt, expected to rise to 79.8 percent of economic output this year from 68.5 percent last year.
“Spain’s borrowing costs are up due to fears that recession will hinder deficit reduction,” Standard Chartered Global Research analysts Sarah Hewin and Thomas Costerg said in a report.
The banking sector was vulnerable to losses on stricken real estate assets accumulated before the 2008 property bubble collapse, they warned, and it “may need a bailout to assist restructuring.”
WEAKER ACTIVITY: The sharpest deterioration was seen in the electronics and optical components sector, with the production index falling 13.2 points to 44.5 Taiwan’s manufacturing sector last month contracted for a second consecutive month, with the purchasing managers’ index (PMI) slipping to 48, reflecting ongoing caution over trade uncertainties, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. The decline reflects growing caution among companies amid uncertainty surrounding US tariffs, semiconductor duties and automotive import levies, and it is also likely linked to fading front-loading activity, CIER president Lien Hsien-ming (連賢明) said. “Some clients have started shifting orders to Southeast Asian countries where tariff regimes are already clear,” Lien told a news conference. Firms across the supply chain are also lowering stock levels to mitigate
IN THE AIR: While most companies said they were committed to North American operations, some added that production and costs would depend on the outcome of a US trade probe Leading local contract electronics makers Wistron Corp (緯創), Quanta Computer Inc (廣達), Inventec Corp (英業達) and Compal Electronics Inc (仁寶) are to maintain their North American expansion plans, despite Washington’s 20 percent tariff on Taiwanese goods. Wistron said it has long maintained a presence in the US, while distributing production across Taiwan, North America, Southeast Asia and Europe. The company is in talks with customers to align capacity with their site preferences, a company official told the Taipei Times by telephone on Friday. The company is still in talks with clients over who would bear the tariff costs, with the outcome pending further
Six Taiwanese companies, including contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), made the 2025 Fortune Global 500 list of the world’s largest firms by revenue. In a report published by New York-based Fortune magazine on Tuesday, Hon Hai Precision Industry Co (鴻海精密), also known as Foxconn Technology Group (富士康科技集團), ranked highest among Taiwanese firms, placing 28th with revenue of US$213.69 billion. Up 60 spots from last year, TSMC rose to No. 126 with US$90.16 billion in revenue, followed by Quanta Computer Inc (廣達) at 348th, Pegatron Corp (和碩) at 461st, CPC Corp, Taiwan (台灣中油) at 494th and Wistron Corp (緯創) at
NEGOTIATIONS: Semiconductors play an outsized role in Taiwan’s industrial and economic development and are a major driver of the Taiwan-US trade imbalance With US President Donald Trump threatening to impose tariffs on semiconductors, Taiwan is expected to face a significant challenge, as information and communications technology (ICT) products account for more than 70 percent of its exports to the US, Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) president Lien Hsien-ming (連賢明) said on Friday. Compared with other countries, semiconductors play a disproportionately large role in Taiwan’s industrial and economic development, Lien said. As the sixth-largest contributor to the US trade deficit, Taiwan recorded a US$73.9 billion trade surplus with the US last year — up from US$47.8 billion in 2023 — driven by strong
RSS