Spain Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Spain related comment. He also maintains a collection of constantly updated Spain charts with short updates on a Storify dedicated page Spain's Economic Recovery - Glass Half Full or Glass Half Empty?

Wednesday, July 23, 2008

Spain's Producer Price Index Hits 23 Year High

Well everything here simply seems to be going from bad to worse, at the very moment you need to export more than ever before, your cost prices start shooting through the roof.

The price of goods leaving Spain's factories, farms and mines rose 9 percent from the year-earlier period after a 7.9 percent increase in May, according to the latest data from the National Statistics Institute (INE). Prices rose 1.1 percent on the month.

8 comments:

Flanders0508 said...

Where will this all end? I'm in the USA where personal income has dropped, unemployment is up and inflation is surging. Yet our economy is large and vibrant enough to absorb and react quickly. Spain's two main industries, tourism and construction, and in a downturn and they are handcuffed by a euro that keeps trading @ 1.58 +- to the dollar. If Spain had the peseta they would have devalued 6 months ago.

I don't understand why their home values haven't tanked even more.

Anonymous said...

Hi Edward,

Just another comment from this endless issue with the housing bubble that is going the whole economy with it.
The problem is that in Spain many politicians are just no competent enough, or just follow "other" interest.
In my view, Zapatero's goberment seems not to have taken the right measures or acknowledge the dimension of the crisis that is coming in. Probably they are coming to grips with what is coming (finally!)
I heard this week they are approving the 0.3 billion purchase of private ground to build VPO (Viviendo de Proteccion Oficial, Public Protected housing), from private companis (like Fadesa for instance)
This action is in line with some of your proposals the goverment should be doing. Also, they are going to encorage renting as option (i guess using fiscal policies)

But I just bumped into this article from El Mundo. The Partido Popular is proposing a wonderful tax deduction from actual 15% to a whopping 25% for house owners... well, i would just say this exactly what helped to bubble in the first place. They propose spending another 6 billion euros (currently home owners get already 6 billion) in supporting the purchase of a property with public resources. And also, increasing the gap between people wanting to buy and people wanting to rent, through unequal fiscal treatment. To me that is once again distorsion of market through fiscal policy. What the Partido Pupular offers is a populist measure, alliviating temporally pain to some home owners, but not tackling the structural problem of the endemic house bubble. Spain needs to come up with new ideas, and not this "kind of easy to win vote measure"

I would say that I rather prefer late but correct measures than incorrect (and also late) populist measures like PP is offering.

Regards
Jaime



http://www.elmundo.es/elmundo/2008/05/27/suvivienda/1211890666.html

Edward Hugh said...

Hi Flanders,

"Where will this all end?"

No comment. Anyway, at this point we can't see. If something major isn't done soon though, I have a pretty good idea where it will end though. In ruin.

"I don't understand why their home values haven't tanked even more."

Well patience Flanders is often a virtue, since in the fullness of time they will. You need to understand that Spain just doesn't react (and adjust) as quickly to things as the US does.

My god, they are still in the process of building a record number of houses this year. The real construction part of the crisis will come next year, at the present time we are merely in the early stages of a financial crisis, which is another matter altogether (of course all the different peieces will eventually lock together - again if no one is capable of reacting - and we will then finally have one huge crisis).

Look. You have to read between the lines here. This is Spain, and Spain is different. The prices quoted (you know the ones that haven't fallen much) are valuation prices. And who contracts the valuers - yep you got it - the banks. And who doesn't want property values to fall, yep you got it again, the banks don't want the value of the underlying asset to be seen to fall to much, or they will have all sorts of additional problems.

And these official prices bear little relation to what properties are actually being sold for, since there are huge "discounts" on offer. It's all about "make up" and saving face. But of course one day reality will out, and then crashing down - pat a pam - they will go.

And on the PPI, the thing is I am now convinced that this all simply a prelude to quite strong deflation, since (assuming the eurozone holds, which is by no means 100% guaranteed at this point) then the only way to sell exports with a high euro will be to bring these prices and the wages that go with them back down again. And the only way Spain is going to get headline GDP growth from here on in is with export growth, so until they get back to an earlier level of relative wages and prices (relative, eg to the rest of the Eurozone, there just went Zpt's claims about how rich we all are) you can anticipate GDP growth being in negative territory or near to it.

Which means some years of very weak economic performance (a few if the deflation is very strong, but then you get Irving Fishers problem, and the impact of the deflation on the accumulated debt) or rather a lot of years of quite weak deflation. Whichever.

Edward Hugh said...

Hi Jaime,

I am putting your link up like this (and taking down the unneeded comment about it).

While I was there there were a few interesting things for those who understand Spanish.

CAM's flotation didn't work out all that well, the price fell initially, and then had to be rescued, presumeably by someone who didn't want it to be a complete disaster. It is still at the bottom end of the quoted range, and we will see what happens in the days to come.

Tras marcar un primer precio de 5,85 euros, lo que suponía una revalorización del 0,17% en sus primeros movimientos, los títulos de la CAM pasaron la mayor parte de la sesión registrando pérdidas, y minutos antes de las 15 horas llegaron a negociarse a 5,51 euros, lo que suponía un retroceso del 5,65%. La CAM es la primera caja que ha emitido cuotas participativas y a través de ellas ha empezado a cotizar en Bolsa, protagonizando además el primer salto al parqué del año. El director de la caja, Roberto López Abad afirmó, tras el tradicional toque de campana que dio comienzo a la cotización, que "están muy contentos" con el salto al parqué. Asimismo, agradeció su apoyo al resto de cajas, que han cubierto gran parte del tramo institucional de la colocación.

Then Standard and Poor's warned about the deteriorating quality of the Spanish banks asset base. This is important, of course, since these are the very people who are ultimately responsible for validating the quality of the cedulas.

La agencia de calificación Standard & Poor's (S&P) ha advertido de que se producirá un rápido deterioro de la calidad de los activos de la banca española a raíz del aumento de la morosidad derivado de la desaceleración económica y el aumento del desempleo. El impacto de la ralentización económica sobre los bancos españoles será "significativo" y se reflejará en la calidad de su cartera hipotecaria, que se ve afectada tanto por la subida de los tipos de interés como del paro.

Edward Hugh said...

More Points Jaime,

Before saying anything more, I want to make the point that I am not political, and indeed want to preserve complete political neutrality in this crisis. Although I do have personal opinions about the relative capacities of the various participants.

My view essentially is that this is now all so serious that it should almost be taken out of politics, and that maybe a coalition government, along the lines of what Angela Merkel heads in Germany would be just about the best thing.

I know, this is typical Catalan fudging and "pactism" (I guess you now think I am a secret member of CiU - who do of course work with both parties - or worse of ERC :) ).

But basically:

"In my view, Zapatero's goberment seems not to have taken the right measures or acknowledge the dimension of the crisis that is coming in. Probably they are coming to grips with what is coming (finally!)"

I think you may be over optimistic on this count. My guess is that the cabinet is now badly divided, and that no one has a clear idea what to do. I also think they need to take external advice, whether from Brussels, the IMF, or Japan, where they definitely have the world's most experienced experts on the problems which start to happen as Non Performing Loans start to melt down a banking system.

I guess there are some old "Argentina hands" knocking about here and there who must have seen similar things, but the difference is that in Japan they eventually managed to contain the problem, while in Argentina they ultimately defaulted.

"The Partido Popular is proposing a wonderful tax deduction from actual 15% to a whopping 25% for house owners... well, i would just say this exactly what helped to bubble in the first place."

Well, in the interest of fairness and balance, I agree this is a stupid plan, although they were putting it forward back in May, hopefully we have all moved on a bit since then.

But I agree, the painful reality is that mortgages are going to become more expensive, and not cheaper via subsidies. This is the same issue as subsidising petrol. Like I said, this is why we need to get politics out of this (in the sense of feuding) since otherwise no one is going to offer realistic plans that voters will not like.

Incidentally, one very interesting and important question that is arising: why is Martinsa not being declared "bankrupt" (quiebra) rather than simply being in administration? Surely no-one imagines it is ever going to become a viable company again? I mean with everything which is now about to come there isn't a "dog in hells chance" of refloating Martinsa.

Well, I will tell you why I think they aren't being declared bankrupt: becuase there are 17,500 families with unfinished homes who would go right down the list of claimants (an thus never see their home or their money) if they went into bankruptcy. Fine. I understand. But all this is becoming a farce as thousands of families more are putting their money at risk in other projects since they are "tranquillos". All of this is still pumping up the problem. If several more big constructors and a couple of banks blow out over the next two to three months those Martinsa families are never going to see their money or their homes anyway, and all of this is just putting off the day, since it is politically expedient so to do. I think we need to get on with this, while the going is still, if not good, at least not "fatal".

"I heard this week they are approving the 0.3 billion purchase of private ground to build VPO (Viviendo de Proteccion Oficial, Public Protected housing), from private companis (like Fadesa for instance)"

OK, the "Corredor Plan". I actually posted something on this earlier in the day as part of one of those eternal updates I am doing to the Martinsa-Fedesa post. Here is what I said then:

Housing Minister Beatriz Corredor announced a small plan to buy some land from the builders today. The Spanish government is planning to buy some 300 million euros ($478 million) worth of land for state-subsidised housing over four years. At the same time she insisted the move was not to bail out ailing construction firms, although it obviously is. She said the government needed extra land to meet its promise to increase production of state-subsidised homes to 150,000 a year from 100,000. The government will start a search for land to buy in October, asking companies to present plots for sale.

A few things are obvious here and needs saying. In the first place this is quite a small quantity compared to the size of the problem, and it is an attempt to do what badly needs to be done, but by the back door. The fact the plan isn't going to be put into effect until October also suggests they are in no hurry, and hence have no real idea of the magnitude of the problem they are actually facing.

Also, why build more home? If the government want 150,000 to 200,000 flats, why not simply buy them at bargain basement prices to try and help clear the huge backlog of unsold housing.

I am in favour of buying back land, but with a large "haircut" to the present owners, and only under condition that this land is reclassified and not used for future building. If you don't do this you are simply never going to clear the market given the long term downward adjustment in the number of houses which are going to be needed in Spain, given that people are now not likely to be buying them for investment purposes in any way which is remotely comparable to the quantities which were built 2000-2008.

Edward Hugh said...

Incidentally, those of you who can speak Spanish can probably read Italian too, and I just found this comment from one of the readesr of this blog on an Italian financial forum:

"L'euro ha ucciso (finanziariamente parlando) la Spagna: una moneta troppo forte, ed un tasso di interesse troppo basso, hanno distorto il mercato del credito, provocato una colossale bolla immobiliare, finanziata con capitali esteri che adesso non arrivano più o peggio stanno tornando da dove sono venuti. Inoltre, visto che la politica monetaria si fa decide a Francoforte, e non a Madrid, la BC spagnola è totalmente priva di mezzi macroeconomici per fronteggiare la crisi bancaria:"

I don't know about people giving economics classes to Zpt or whatever, but this guy gives effectively a master class in one short paragraph.

I mean what he is effectively saying is that the absence of independent monetary policy meant you had no way to stop yourselves going up, you were simply shot out of the cannon, and now you have no way to stop yourselves coming down just as quickly as you went up.

I point out: interest rates at the ECB just went up, not down.

RealThink said...

"why build more home?"

Because politicians WORLDWIDE are completely ignorant of the fact that the world is hitting the physical limits to growth, most notably, but not exclusively, in the global oil extraction (not "production"!) rate.

If they were the least aware of it, they would be launching a massive plan for building wind farms, not homes.

But relax, it's the same in the US. Instead of embracing Al Gore's recent plan, Congress is focusing on saving Fannie Mae and Freddie Mac, and starting a witch hunt against the evil speculators that caused the recent oil price rise.

Which is even more tragical in the US because mortgage financing there encourages the construction of oversized, far-away-from-everything suburban McMansions, which will be turned into traps for their occupants by higher energy prices.

Edward Hugh said...

Hi RealThink,

"But relax, it's the same in the US..."

Somehow I'm not very reassured by the comparison with the US. The problem here is much much worse.

"Which is even more tragical in the US because mortgage financing there encourages the construction of oversized, far-away-from-everything suburban McMansions,"

Just like the problem we have in Spain down in Almeria. And we have an additional problem: water.

"If they were the least aware of it, they would be launching a massive plan for building wind farms, not homes."

Well, at least you do have people coming on stream to live in some of these homes, since your fertility is around replacement (at 2.1) and here we are down at 1.3.