Spain Officially Enters Recession

Well it would seem that Spain's recession is now as official as it is ever going to get (since there is no Spanish equivalent of the US NBER independent dating committee), and it started on 1 July 2008 (assuming we get no posterior revisions to the Q2 data, which is always a possibility, you know, opening the gate after the horse has bolted). The Bank of Spain this morning that - according to their estimations, which will undoubtedly be very near to those of the INE - Spain's GDP fell by 0.2 percent in the third quarter from the previous quarter, the first such decline in 15 years. Of course, for this to be a recession we need 2 successive quarters of q-o-q GDP contraction, but is anyone in their right mind going to suggest at this point that Q4 will see an expansion (well, there is always Artemio Cruz himself, but then I did say "in their right mind"). Let's take a look at the chart:



Well, I have had to look at a lot of "strong" material in recent months - the Baltics, Hungary, etc - but this one beats them all, frankly I am flabergasted, since I have never seen anything like it (except, possibly, the Irish equivalent).

The Bank of Spain also said in a statement released this morning (Friday) that the annual growth rate in the July to September period was 0.9 percent, just half the rate achieved in the second quarter. If we look at the year on year chart then it is clear the we will soon be in year on year contraction territory (possibly in Q4 at this rate, but maybe in Q1 2009). The Spanish economy will almost certainly contract in 2009, and very sharply. Depending on a number of factors which still aren't clear, I would say we should belt ourselves in for a contraction of between 3 and 5 percent.



So now we know when we entered. But anyone want to guess when we will leave? At this stage I can't even reasonably guess.


And if you like perusing charts that only ever seem to point sharply downwards, the you really should try some of the individual country readings on the latest EU sentiment index, since European economic confidence saw its biggest ever fall in October, as the global bank crisis generated the bleakest outlook since the early 1990s, according to the findings of this months European Commission economic sentiment survey. The survey results give us just one more dramatic illustration of the devastating impact the financial turmoil is having on the real economy. Pessimism has risen dramatically on all fronts - from manufacturers' expectations about exports to consumers' fears about unemployment.

These gloomy results now make it almost a certainty that the European Central Bank will cut its main interest rate by at least half a percentage point to 3.25 per cent when it meets next week.





The European Union executive's "economic sentiment" indicator for the 27-country bloc fell by 7.4 points in October to 77.5 points. The latest index reading was the lowest since 1993 and marked the largest month-on-month decline ever recorded.