Spanish GDP Q2 2008

Bloomberg this morning are reporting the following:

Spain's economy expanded the least in 15 years in the second quarter as record oil prices and the collapse in homebuilding destroyed jobs and sapped spending, the central bank said. The economy grew 0.1 percent compared with a 0.3 percent pace in the first quarter, the Bank of Spain said in its quarterly bulletin today. From a year earlier, the economy expanded 1.8 percent.

Now I think we need to be very careful here, what the BoE actually say is:

The economic indicators for 2008 Q2 point to a more pronounced adjustment, and one particularly sharp in private consumption and in employment, against a background in which the extension of the bout of fi nancial turbulence and the climb in crude oil prices are heightening uncertainty over economic developments, with significant effects on agents’ confidence. The Spanish economy’s high dependence on external saving along with the importance of oil and oil derivatives in its productive structure are contributing to spreading the effect of the shocks assailing it. In this setting, the estimates made drawing on the available conjunctural information suggest that the year-on-year growth rate of GDP in Q2 was 1.8% (0.1% in terms of its quarter-on-quarter rate), as a result of a signifi cant cut in the growth rates of the different components of national demand — which overall are expected to have increased at a rate of 1.9% (2.8% in the previous quarter) — and of a 0.2 pp improvement in the contribution of net external demand, which is estimated to stand at -0.1 pp. On the supply side, the correction in the residential sector has become more acute in recent months and is exerting a marked impact on employment, which would be acting as the main transmission channel of the real estate adjustment to the rest of the economy. The EPA data for Q2 show a strong cut in job creation, the growth rate of which was 0.3% on a yearly basis. The unemployment rate rose to 10.4%. As to prices, the deterioration in infl ation continued in Q2, and the increase in oil prices was quickly refl ected. As a consequence, the HICP rose in June to a year-on-year growth rate of 5.1%, which placed the differential with the euro area at 1.1 pp, the average level since the start of Monetary Union.

Now basically I think we should be very careful with this data, since as the BoE say it is made using "available conjunctural information", and thus is a guess, even if it is a very educated one. Most of the data which is available is still liable to revision at the INE (which is the source of the stats and not the bank) and thus growth of only 0.1% is well within a margin of error which could mean (at this level)that growth could just as easily be -0.1% as 0.1%. And in a sense all of this is academic, since if we are not in negative growth this quarter, we will be in the next one. Which is why, for the life of me, I can't understand this from Pedro Solbes:

``We're working on the basis that there will be no recession,'' Solbes said today in an interview with Cadena Ser radio. ``But we're also working on the assumption that growth will be very close to zero in the next few quarters.''

I mean where the hell does he derive this assumption from? Let's imagine the BoE data is more or less accurate and look at the charts. First GDP growth year on year:



and now here is the chart for quarterly change:



Now in both cases the line is down. And why should we not expect this downward line to continue? I cannot think of a single reason. Unemployment is going to get worse not better, less houses - a lot less - are going to be built in 2009 than in 2008, the eurozone itself is now slowing sharply, and Germany may even be entering recession, etc, etc.

So let's be clear. It is technically just possible (though I won't be convinced till we see the flash estimate on August 14th and even not then if growth is only 0.1% and within the error margin for subsequent downward revision) that Spain hasn't entered recession in Q2. But even if it hasn't it will, and in Q3 2008.