Ignis warns on Spanish economy

“Spain is like Ireland, Portugal and Greece, only more so," warns Stuart Thomson, Chief Economist with Ignis Asset Management.

"Ireland has a banking crisis, Portugal has a private sector debt crisis and Greece has a public sector debt crisis, whereas Spain has a combination of all three." Mr Thomson's grim outlook for Spain is saved by one factor - whereas its three European counterparts are "in the loving embrace of the European Union/IMF bailouts - Spain is too big to fail," he says, stressing that its size represents 8% of the Eurozone's GDP and is, after all, the world's 12th largest economy. Mr Thomson doesn’t believe Spain is technically bankrupt or that it will experience debt restructuring within the next few years.

However, he does suggest the following as a likely outcome. "In addition to the funding requirements of higher than expected deficits, Spain needs an extra €100-150bn to help recapitalise its banking sector. We do not believe that this will be provided by private sector investors and will have to be provided by EU/IMF funds. This borrowing will be paid back and we do not believe that Spain will be forced to restructure. Nevertheless, spreads have to widen to force the recapitalisation and additional borrowing over the next twelve months"