Co-blogger Edward Hugh has posted a translation of a German-language interview where he talks about “hot labour”, large surge of muigration fueling boom/bust cycles.
Strong growth. Rising real estate prices. Rapid job creation. Surging immigration. This list sums up the Switzerland of 2014 down to a tee. However, it also sounds like a description of what things were like in Spain in 2007 – shortly before the country’s economy fell off a cliff. What follows is a conversation between financial journalist Detlef Gürtler and economist and crisis expert Edward Hugh about possible parallels and differences between the two booms, and the role of a new phenomenon which Hugh describes as “Hot Labour”.
Hugh argues that this is a new phenomenon, and on the increase as a result of central bank bubble inducing activity. While immigration is a vital tool aiding economies to manage the population ageing process, it is important that economic activities be balanced. Immigration fueling boom/bust cycles is far from innocuous, and harm a country just as much as a sudden stop in capital flows if the immigration is followed by emigration.
Detlef Gürtler: Well Edward, you personally lived through one of the most important real estate booms in European history – the recent Spanish one. Is the real estate boom we are witnessing in Switzerland in any way comparable?
Edward Hugh: Before I start, I think it’s worth pointing out that it goes without saying the Swiss are quite different from the Spaniards; and the Swiss economy is completely different from the Spanish one. In this sense every boom or crisis is in its own way different from anything before. That said, such “trivia” doesn’t normally stop economists like me from trying to draw comparisons, even if in this case I have to be extremely careful, since while I know quite a lot about Spain I know much less about Switzerland. So perhaps you will help me.
Detlef Gürtler: Yes, economists do make comparisons, and you were even so bold as to draw one between the German 1990s housing boom and the one which took place in Spain after the start of the century.
Edward Hugh: Well this comparison isn’t so strange as it may seem. Many talk today about Spain becoming the new Germany – in the sense of an export powerhouse – and while this idea may have a rather dubious basis in reality the shift from domestic consumption to exports is quite striking.
In both cases the subsequent “regeneration” was preceded by a significant consumer boom, in both cases there was a strong increase in real estate prices including a construction boom, in both cases there was an increase in household indebtedness, in both cases the current account deficit deteriorated. And then in both cases there was a rude awakening. The only real difference was one of scale, and in this case scale is important. Spain had what was at the end of the day the mother of all housing bubbles.