by Edward Hugh: Palamos (Costa Brava)
Well, hello everyone. I'm supposed to be on holiday at the moment, but since economic events simply refuse to stand still (not even for me, and especially not in Russia), what else can I do. In theory I'm resting quietly in that nice looking building behind the Palamos lighthouse you can see in the photo above, and since time and Spain's developing economic crisis stand still for no man, then here I am sitting sweating it out in the local cyber cafe.
Rising Government Deficit
Spain's central government budget deficit seems to have shot up in July - reaching 9.97 billion euros ($14.75 billion) in the first seven months of 2008. The government did not provide a monthly figure for July, but the accumulated deficit for the first half of the year totalled 4.68 billion euros, so it looks like the July deficit alone as 5.29 billion euros (which presumeably has something to do with the impact on the balance of the government anti crisis measures, like the 400 euro cheques.
A sharp slowdown in economic activity, especially in the building sector, cut net non-financial revenues by 4.2 percent while net non-financial spending rose by 5.9 percent. Spain posted a record budget surplus of 2.2 percent of GDP in 2007, while the economy grew by 3.7 percent.
The Economy Ministry said on Thursday the deficit was equivalent to 0.89 percent of annual gross domestic product and that it compared with a surplus of 7.52 billion euros in the same period last year.But since the deficit was accumulated in only 7 months, then the annual rate would seem to be nearer 1.5% of GDP (up from an annual rate of only 1% of GDP in June and of course rising rapidly). At this speed, it would not be surprising if we were clocking up deficit at the annual rate of 3% by December (which means in theory no more additional measures with breaking the EU limit), and the deficit for 2008 as a whole now looks set to be more than 2% of GDP at a first guess approximation.
GDP Growth Detailed Figures Released
The INE confirmed the 0.1% q-o-q growth rate yesterday (I will try and go through the data a bit more over the weekend) and one thing stands out: investment in Spain slumped, falling by 1.7 percent from the previous quarter. Household consumption increased 0.1 percent after 0.3 percent in the previous three months and government spending propped up the expansion, increasing 1 percent after 0.7 percent.
Also, and as noted in my last post on the May balance of payments data, second quarter growth was actually supported by Spain's external account (which normally cuts into growth) and net trade added 0.3 of a percentage point (that is to say more than the total growth for the quarter, not due to improving exports, but due to falling imports. That is why you can get a strange statistical effect whereby everyone "feels" worse off since they are consuming at a slower rate, but headline GDP gets a boost from the slower consumption. (You can see the same effect in German GDP numbers earlier in the week, and in the US data today).
Basically, my view is that the positive growth registered in Q2 2008 will be the last positive q-o-q reading for the next several quarters.
Mortgage Lending Down Again
Home mortgages fell by 37.7% year on year in June, compared with a drop of 36.2% in May. A total of 43,090 homes were sold in June, compared to 61,595 in June 2007. Transactions in June were also down 6% on May. The capital value of the mortgages loaned in June was 37.1% less than in June 2007.
With stress in financial markets ongoing and unemployment rising rapidly, it is hard to find any convincing reason why the Spanish housing market should improve any time soon. In fact, the situation is likely to get a lot worse before it gets better. We have yet to see year on year falls in the official house price index and it seems only a matter of time until we do.
ECB Pressure ON Spanish Cedula Funding Continues
The debate about what to do about the creation of mortgage backed securities expressly for deposit at the ECB continues. According to Unicredit SpA Spain's banks have accumulated 89 billion euros of their own asset-backed securities, more than any euro-region country, for use with the ECB as collateral in auctions. As reported on this blog here, various influential members of the central bank governing body have been loudly indicating that the ECB is about to change the rules. Many of these securities may have been specifically created with a view to refinancing the cedulas which need to be rolled over in the autumn, but frankly I will believe it when I see it as far as any ECB action goes, since with all the rumpus they have created over their interest rate policy they would hardly want to find themselves being balmed for a major banking crisis in Spain at this point.
Large Estate Agents Slimming Down Rapidly
El Pais is reporting that the 10 largest estate agents in Spain have closed more than half their offices in the last six months. The collapse in home sales has forced 2 national chains of estate agents into administration (MC Inmobiliaria from Andalucia, and Expofincas from Catalonia). 2 others, Fincas Corral and Don Piso, have been put up for sale, though so far without any takers. At the end of last year, 9 of the 10 biggest agents in Spain had more than 100 offices around the country. Today, only 3 of them have more than 100 offices. They have gone from a combined total of 3,000 offices at the end of last year to just 1,434 today.
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?