Economics

Adios Christmas as Spain's Recession Bites


By Emma Ross-Thomas

(Bloomberg) — For the first time in their lives, Consuelo Serrano's kids won't get a visit from Santa Claus.

The Spanish mother will give presents only on the Jan. 6 Epiphany holiday, a Christian feast that marks when three wise men visited Jesus. As Spain grew faster than the region over the last decade, Serrano and millions like her handed out gifts at Christmas too. Now, she's the sole breadwinner as the nation's jobless rate soared to the euro area's highest.

"The children used to ask for PlayStations and computers but they know that won't happen this year," said Serrano, 43, who earns 1,100 euros ($1,620) a month at a bakery in Madrid and has three children aged from 11 to 14.

Spanish holiday spending will drop 9.1 percent this season, according to Deloitte, more than the 6.3 percent decline forecast for western Europe. El Corte Inglés SA, the nation's biggest department store operator, is advertising 70 percent discounts to lure shoppers.

The credit crunch exacerbated the collapse of Spain's housing boom last year, leaving people struggling to pay household debt that is among the highest in the euro region. The protracted crisis means more than half the jobless, including Serrano's husband, have been out of work too long to get full benefits. Spain's unemployment rate is 19 percent.

The outlook for next year doesn't give consumers much reason for holiday cheer. The economy is forecast to contract 0.8 percent in 2010, lagging behind the European Commission's estimate for European expansion of 0.7 percent. Spanish unemployment is expected to rise to 20 percent.

No Presents

"There won't be any presents," said Luis Alberto Llumipanta, 36. The father of three, an Ecuadorian who's lived in Spain for 12 years, lost his job as a carpenter and has had to refinance his mortgage.

Shoppers may be skipping Christmas gifts and are likely to delay spending on any presents as long as possible, hoping for bigger discounts, said Miguel Angel Fraile, head of the Spanish Retailers Association. Spanish consumer prices fell from March to October, the first decline for 50 years. Even after prices rose in November, inflation remains below the euro-region average.

"People are going to buy more at the last minute, thinking that there will be better offers," Fraile said. He estimates prices for some gifts are as much as 15 percent cheaper than a year ago.

Fur Coats

El Corte Ingles slashed the price of a Fisher Price (MAT) activity center by 40 percent to 50 euros and offered 50 percent off of fur coats last week. The department store is making a "very significant effort" on discounts this year to stimulate demand, said a spokeswoman.

Foreign retailers like Carrefour SA (CRERY) are also having trouble. In Spain, the Paris-based retailer's second-biggest market, it cut prices as much as 25 percent on 10,000 products per store this year, a spokesman said. This week, it offered 20 percent off toys. Carrefour's same-store sales in Spain dropped twice as much in the third quarter as they did globally.

"Spain is the worst of all," for sales, said Enric Casi, general director of Barcelona-based clothing chain Mango, which makes a fifth of its revenue in Spain. The company plans to open 200 stores next year. None are planned in Spain, Casi said.

Credit Agricole Cheuvreux cut Zara fashion-chain owner Inditex SA (ITX:SM) to "underperform" Dec. 11, saying sales were weaker than forecast and there wasn't enough evidence to raise its earnings estimates. Inditex posted a 4.3 percent increase in third-quarter net income yesterday, helped by business in Asia.

No More Benefits

Fewer than half of Spain's 3.8 million unemployed are still receiving their contributions-based jobless pay, which lasts a maximum of two years, according to Labor Ministry data. Another 1.2 million receive smaller subsidies, such as a 420 euro-a- month benefit introduced in August.

Unemployment among people younger than 25, who account for 10 percent of the labor force, is more than 40 percent, posing a further risk to companies that focus on young fashion such as Hennes & Mauritz AB (HMB:SS), or Inditex's Bershka brand, said Francisco Ruiz, an analyst at Fortis Bank SA in Madrid.

Debt built up during a decade-long real estate boom is also crimping households' ability to spend. Mortgages, consumer credit and other loans account for 77 percent of Spanish GDP, compared with 51 percent in the euro region and 55 percent in Germany, according to European Central Bank data.

Monthly mortgage payments that exceed her income are keeping 42-year-old Nidia Vargas away from the shops after her husband lost his job as a builder.

Delayed Recovery

"We'll try to do something for the children, but minimal, something from the corner store," said Vargas, a Peruvian who's lived in Madrid for three years and works in a home for disabled people.

Compared with last year, when household consumption fell an annual 3.4 percent in the fourth quarter, this year may not look as bad, said Gregorio Izquierdo, head of research at the Institute of Economic Research in Madrid. A year ago, higher interest rates also cut into spending power in a country where home ownership runs at about 80 percent.

"I think this Christmas season will be better than last year, not because it'll be particularly good, but because last year was especially tough," said Izquierdo.

Still, retailers may not see a real recovery until jobs are created, which won't happen on a net basis until the end of next year, Deputy Finance Minister Jose Manuel Campa said last month.

That's bad news for Serrano's husband, a technician for a telephone company, who's been out of work for two years and is searching for any job he can find.

"We have to get out of this somehow, I just don't know how," Serrano said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.

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