Obviously Spain's performance comes as no special surprise, although the month on month reading - a contraction of only 0.7% compared with June (following a monthly contraction of 3.4%) - is perhaps surprising, even if it should not be taken as indicating any special change in trend, since the worst we can be pretty sure lies ahead of us and not behind us.
The Number Of Unpaid Bills Of Exchange Continues To Rise
The number of unpaid bills of exchange increased by 47.7% in July when compared with the same month in 2007. 5.2% of the total number of expired bills remained unpaid. In July, the number of returned unpaid bills of exchange was 618,133, and this was a year on year increase of 47.7%. The value of these unpaid bills hit 2,072 million euros, making for a 121.5% increase when compared with July 2007. So the pressure is making itself felt across the board now.
Spain's Services Activity Contracts Slightly In July
On the other hand services activity did possibly better than might have been expected, all things being considered (the slowdown in the UK, travel costs etc), and year on year activity was only down 0.2% (according to INE data), although this does, of course mean that it is more than likely that Spanish GDP was actually declining in July, since services is the sector which is possibly doing least badly at the moment.
Thank you for your great blog.
ReplyDeleteI understand that relatives figures (increase/reduction) of construction output matter a lot in terms of gobal impact on wages and employment level.
I'd be glad to hear as well about the absolute level of output and even more absolute level set against housing needs.
I find it difficult to avoid speculating about the bottom level of construction that would basically fit the bill in recessionnary times. How low?
May we assume that to be something between 200 and 300 000 per year? Is there in your opinion room for more in view of the current stock?
Kind regards for your great work
Hello again françois,
ReplyDelete"I'd be glad to hear as well about the absolute level of output and even more absolute level set against housing needs. I find it difficult to avoid speculating about the bottom level of construction that would basically fit the bill in recessionnary times. How low? "
Well, I've been looking at this issue a bit. I can't put numbers on the quantity of houses, but you can look at this from the angle of the construction share in GDP, and how large this can be in a balanced economy on a sustainable basis. 11% - which was the Spanish share in 2007 (as defined in the NACE classification of construction and published in the Spanish national accounts) - is way, way too high, and is far from "balanced".
This kind of level is only possible - as we have seen in both Spain and Ireland - if you are able to sell lots of the domestic population 2 homes (one to live in and another for a rainy day), import sizeable numbers of immigrants, and bring-in lots of North Europeans to buy holiday homes. But all these three activities were based on a demand side pull which centred around the expectation of ever rising prices.
Now I have no idea how far prices will fall, but one thing is for sure, the days in which prices are going to rise again are a long, long way off in Spain, so in the forseeable future even holiday homes are going to be hard to sell (rather than rent), since part of the attraction was the rising price.
Judging how much housing is "needed" is hard, since there is no really objective definition of "need". I mean, how many hectares of garden would you like, and how many bathrooms and jakuzzis?
Now I have looked at Germany post 1995, when the German economy last had a major construction boom, and pre 1995 the German construction share hit 6% (which seems small in comparision with Spain, but believe me it was big), and they shrank their construction sector to 3.5% where it has stayed. The remaining shortfall they have made up with exports.
Now Spain may not need to fall all the way to 3.5%, but I hardly see more than 5% being sustainable, which means the transition is going to be massive, and remember it took the Germans 10 years to get from then to now.
Part of all this depends on demographics, and the rate of new household formation, but since we have just seen the largest cohorts passing through, and from now on cohorts will be progressively smaller due to ongoing low fertility, then unless you Spain hangs on to the immigrants it is hard to see where demand for even 5% construction is going to come
AFTER the recession.
Of course, during the recession the level will fall below even the 5% mark as they have to sell off what has already been built, but this is where the government will step in with civil engineering projects to try to offer some support. But remember, even this is very costly in terms of govenment debt, and since rvenue is going to be way down as the recession bites, and unemployment payments way up, the room to finance civil engineering construction without balooning debt to GDP (which the EU won't allow) is really pretty limited.
So, we are back to the department of no easy answers, and a slow and probably quite painful transition, which will of course be all the worse if they don't find some way to inject some real money into the banks before they get into real trouble.
Hi Edward,
ReplyDeleteYou really answered my questions in full and a detailed manner. Not always the case when you put questions such as these ones bordering to politics.
I appreciate your figures including the potential bottom percentages. They definitely make sense IMHO.
Let us hope that Europe display both some sense of "Community" (EC is?) and an efficient handling of macro stuff.
I am reasonably optismistic on that latest point. Europe is neither China nor US...
The chances that our framework offers some flexibility in rough times whilst sticking to adequate monetary standards.
Thanks a lot.