Merry Xmas and A Happy New Year

Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.



Credit crunch, did someone use the expression credit crunch?

Spain's Economic Slowdown

Retail sales across the entire 13-nation euro region fell in November according to eurostat data released yesterday, dropping by 0.7 per cent from October to a level which is just 0.2 per cent higher than the Novemeber 2006 one. Of course this average hides considerable variance, with the weakest performances coming from Germany, Italy and Belgium.

But of particulr of note is the performance of retail sales in Spain (the zones 4th largest economy) since strong growth in Spain has previously offset weaknesses in Germany and Italy at previous critical junctures. But this time it will be different, since Spanish retail sales have fallen in both October and November, and while the year on year readings are still in positive territory, they will not remain there for long since the earlier strong readings will eventually drop out of the data.




And since the spring the story in both services and manufacturing has been one of one long and sustained declined, as the data from the monthly Bloomberg/NTC Purchasing Manager Indexes reveal.



Meanwhile the consumer confidence index prepared by the Instituto de Credito Oficial continues to plummet the depths, registering at 76.1 in November a historic low for the third consecutive month.



This drop in confidence is also reflected in the data for new mortgages issued (latest data still only September unfortunately), where the slowdown is clear if you compare the numbers for 2007 with those for 2006 (and especially since the spring, although my feeling is that when we get numbers for October and November we will see the slowdown accelerating, as buildings contracted in 2006 reach competion. Of course we should remember that those buildings and flats sold on the basis of architects plans in June and July - ie prior to the August sub-prime "bust" - will still be giving work until next summer, even if the would be purchasers may be increasingly looking for an "escape clause" as property prices steadily decline).



If we turn to the emplyment sub component of the Spanish index we will see that the outlook has changed dramatically in the last three months.



and the underlying situation again becomes clear if we look at the unemployment numbers, where a comparison between 2006 and 2007 is again revealing. We can see that in the early months of this year the employment situation was up over 2006. Then the situation turned (around July), and since then it is "down hill all the way" unfortunately.

Mortgages In Spain

Looking at the way thinks are shaping up in Spain, and at the same time living here, I am obviously going to follow this one close up now.

I have been looking in the statistics office site for data on mortgages, but unfortunately the most recent we have at this point are July. Since the data we really need are for September, this means we won't really know the full extent of the initial hit on Spain till early December. Nonetheless some indication can be obtained by looking at what was happening before things seized up.


If we look first and the number of mortgages made each month.




Now if we look at the value of these mortgages in millions of euro.





What we can see is that the property market in Spain really peaked towards the end of 2006. The market hit a bottom in April, but there was a rebound in May (offers from property promotors?). But the rebound was not sustained and then the market again resumed the downward march. All we need to know now is the extent of the damage in September, and how low can we go. I am not optimistic. This is with us for some timne to come, and will probably be - proportionately - much more important that what is happening now in the United States.

Spanish September Consumer Confidence Plummets

While it should be obvious to anyone that the most of the national economies in the Eurozone are slowing rapidly, and have been in the Italian and German cases since early summer, this downturn will present some new features. In particular the former "stellar economies" - Spain, Ireland and Greece - may be the worst affected due to their heavy dependence of construction activity for obtaining growth, and due to the dramatic nature of the downturn since mid-August in the property sectors of those countries.

Up to now the data in this regard has been rather anecdotal, like the big drop in cement output in Greece, but today we have a first real data reading (retail sales etc data for the relevant period will still be a little while arriving) in the shape of the Spanish Consumer Confidence Index. Over to Bloomberg:

Consumer confidence in Spain declined to a record low in September after the fallout from the U.S. subprime-mortgage slump pushed up borrowing costs worldwide.

The Official Credit Institute's index of consumer sentiment dropped to 80.2 from 86.5 in August, the institute said today on its Web site. That is the lowest reading in a series that started in 2004.

The cost of inter-bank loans jumped in August after European lenders disclosed losses in the U.S. mortgage market. That pushed up payments for Spanish homeowners who have variable-rate loans tied to the 12-month interbank lending rate for the euro region.

``Spain is heading for a marked slowdown and by mid-2008 we expect it to be growing at decidedly below-trend rates,'' Dominic Bryant, an economist at BNP Paribas SA in London, said in an e-mailed note.

The 12-month Euribor rate jumped to 72 basis points above the European Central Bank's benchmark interest rate this month, twice the average spread since the debut of the euro. In Spain, 95 percent of home loans have variable interest rates.

Here's the chart:




and here's the chart for the sub-components:




What can be seen from this chart is that all the components reached a peak this summer in April and May, in June and July they were all down, but only to the level of February/March, then from July onwards the whole thing starts to subside, and who knows if we have touched bottom yet, since all the forward indicators are a bit more positive, but my feeling is that that is rather an indication of the fact that people still don't appreciate the gravity of what is happening. It hasn't sunk in yet, and people are still expecting the housing market to pick up in a quite unexpected fashion. Spain could face a hard landing. If things continue to move at this speed it will get one.

Also service activity in Spain, which accounts for some 60 percent of the economy, posted its slowest expansion in almost two years in September, according to a separate survey of executives by NTC economics. The index fell to 52.4 from 53.5 in August.



A similar picture can be seen in the manufacturing PMI, although manufacturing accounts for a much smaller part of total economic activity in Spain than in some other European economies.



In the case of manufacturing, the rate of expansion has been slowing since June, although some reduction of activity is normal in the summer. It is the September reading which should give cause for concern here.

At the present time we are simply talking about a slowdown in the rate of expansion, but how far is this now away from an actual contraction. Not very, I would say.

Migrants in Spain

Romanians in Spain

For those who missed it, here's a graph showing the number of Romanians living and registered in Spain:



This data can give us some idea of how many Romanians are currently living and working outside their country at the moment. We should also remember, of course, that not all the Romanians who have out-migrated since the end of the 1990s have gone to Spain (there are for example a significant number in Italy), although I dare say a fair proportion of them have. The important thing is that we simply don't know. What we do know - and we know it since the Romanians in Spain (whether they are working legally or not) have an interest (like access to the health system and future amnesties) in registering with the authorities, and indeed the Spanish authorities have (for their own reasons) an interest in maintaining the data in a very up-to-date condition - is that according to the Spanish Padron Municipal electronic-data there were 524,995 Romanaians with active and valid id cards for the Spanish health care system as of 1 Jan 2007. These are not just Romanians who are simply passing through, or just might be around somewhere. The municipal registration which lies behind the data is renewable regularly for those without resident permits, and renewing them is how you get the right to have residence later, so this data is VERY accurate.

Just how accurate can be judged from the sort of detailed data you can get from the Spanish statistics office, like the breakdown of Romanians in Spain by age and sex which I present below. And yes there are people in the 75 to 80 (54) and over 85 groups (41), it's just that they are so few that they don't show.

Spain 25 to 49 Age Group

Right. This blog is about to start to rock'n roll, as I start first of all sticking up data.

First off here is the chart for the 25 to 49 age group as a % of the total population. This group seems to have just more or less peaked at 40% of the total. This is one of the highest proportions I have seen for any society to data, and undoubtedly, in part, helps explain the almost unique characteristics of the recent housing boom in Spain.

Spanish Economy Slows in Q2 2007

From Bloomberg this morning:


Spanish Economic Growth Slows as Construction Cools

By Ben Sills

Aug. 29 (Bloomberg) -- Economic growth in Spain, where housing prices have doubled in six years, slowed in the second quarter as rising interest rates damped construction.

The economy, Europe's fifth-largest, expanded 0.9 percent from the previous quarter, when it grew 1.1 percent, the National Statistics Institute said on its Web site today. That was more than the initial 0.8 percent estimate published Aug. 14. The economy grew 4 percent from a year earlier.

Construction expanded at the slowest pace in more than two years as the doubling of interest rates by the European Central Bank made mortgages more expensive. Fallout from the subprime mortgage crisis in the U.S. may lead banks to tighten credit, further hurting building, which accounts for 18 percent of the economy, almost twice that of the 13-nation euro region.

``There is a risk that credit will be made more difficult in Spain and this would have a much bigger impact on GDP,'' Stephane Deo, chief European economist at UBS AG in London, said. ``We'd like to know what banks are doing now and how investment and consumption are reacting.''

Spain's benchmark stock index fell 0.3 percent to 14,089.90 at 10:44 a.m. in Madrid, with shares in Actividades de Construccion y Servicios SA, Spain's largest builder, losing as much as 2.1 percent to trade at 39.20, their lowest level since July 2006.

Growth Forecasts

Last month, the government predicted the Spanish economy would grow 3.8 percent this year from 3.9 percent last year. Deo forecasts that growth will ease to 2.5 percent next year, which would be the slowest pace in more than a decade.

Investment spending sustained its 6.6 percent growth pace in the second quarter while investment in factory equipment surged 13 percent on the year, close to the 13.3 percent increase posted in the first quarter.

``The Spanish economy has to investment in improving its competitiveness,'' Diego Fernandez, an economist at Fortis Bank in Madrid, said. ``Investment in factory equipment is offsetting to a certain extent the slow down in construction and that is very important for us.''

Home starts in Spain plunged more than 20 percent in May as developers reacted to the drop-off in demand caused by rising borrowing costs. The slowdown has hit shares of real estate companies.

Astroc Shares

Metrovacesa, Spain's biggest real-estate company, has lost 37 percent in Spanish trading this year. Astroc shares lost 87 percent from their Feb. 26 peak and today traded at 9.45 euros at 9:50 a.m. in Madrid.

The European Central Bank has increased interest rates eight times in the past two years and may raise borrowing costs for a ninth time before the end of the year. The benchmark rate for the 13 euro region countries is 4 percent, twice the level of November 2005.

Construction increased 4.6 percent from the year earlier period, down from 5.2 percent in the first quarter, today's report showed.

Rate increases have a more direct immediate effect on Spanish families because 96 percent of mortgages in Spain have variable rates, compared with about 20 percent in the U.K. and 12 percent in the U.S.

Slowing construction is also weighing on employment growth, economists said.

``Employment growth has also moderated as construction slows down,'' Giulia Faggio, an economist at Citigroup Inc. in London, said. ``We expect a gradual slowdown of the Spanish economy.''