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?

Monday, January 04, 2010

Is Spain Getting Left Behind?

This not unreasonable question was asked today by Ralph Atkins on the FT's Money Supply Blog:
The economic news from Spain has turned more worrisome. Eurozone purchasing managers’ indices for manufacturing showed the region’s recovery humming along nicely (December’s final index reading at 51.6, up from 51.2 in November, was in line with the preliminary estimate released last month).

But Spain is heading in the opposite direction. Activity in its manufacturing sector continued to fall, and the pace of contraction in the fourth quarter was faster than in the third quarter, according to Markit, which produces the survey. Spain’s manufacturers are also reporting far steeper job losses than in other large eurozone economies, according to Chris Williamson, Markit’s chief economist.

Ralph certainly has a point here. Spain's December PMI results are shocking, it posted 45.2 in December, just below the 45.3 posted in November, indicating a still substantial rate of contraction. Even more to the point this is the third month running where Spain has turned in the worst reading of any of the 26 countries included in JPMorgan's Global Manufacturing Survey.

As Andrew Harker, economist at Markit, puts it:

“The December PMI data completes a dreadful year for the Spanish manufacturing sector. Output decreased in each month apart from a marginal rise in July, with demand showing very little sign of recovery. The weakness of demand, amplified by dire labour market conditions in Spain, means that while input costs are rising, firms are forced to continue to offer discounts, further harming margins.”

As Ralph points out, Spain's high unemployment could be one reason why Spanish manufacturing output continues to contract - there is less demand for manufactured consumer products. But this does not explain why Spanish exports are also under-performing the eurozone average. As he says, to understand this you need to understand the competitiveness issue. Spain's trade deficit has in fact deteriorated rather than improving in recent months, so something somewhere isn't working.

And meanwhile, according to the latest Bank of Spain data, net external debt rose in the third quarter, to 955 billion euros, or just under 90% of GDP.

And the government deficit keeps rising and rising. According to estimates by Julian Callow of Barclays Capital, Spain's general government borrowing requirement in the third quarter was around 33.96 billion euros (or an estimated 13.0% of GDP), up from 31.2 billion in the second quarter (around 11.9% of GDP).Based on this estimated Callow reckons the fiscal deficit to GDP ratio might come out at an average of around 11.5% of GDP for 2009, substantially worse than most estimates (e.g. the OECD’s mid-November estimate of 9.6% of GDP). I largely agree, and have been working on a rule of thumb estimate of 12% of GDP deficit (partly because I think GDP will finally come in lower than expected, and partly because I fear revenue will fall more than anticipated).

And to cap it all (for today) October house sales and new mortgages both fell back sharply from September.Take a good look at the two charts below (the first is the % drop in new mortages constituted from the peak, the second is a three month moving average of new house sales) I'm sure you'll agree, they have recovery written all over them.

But to come back to Ralph's initial point, I wouldn't say that Spain is simply being left behind, it is actually going backwards. And now the screws are really - slowly but steadily - going to start to tighten. The first hint came last week with the announcement that the latest one year Euribor "fixing" had gone upwards for the first time in a year, due to the slow movement upwards of the Eonia inter bank rate (as forecast in this post). So mortgage interest rates are now going up, and it will be a long long time before they start to come down again. Secondly, while almost everyone in the private sector is busy adjusting prices downwards, a whole raft of government and local authority administered prices were raised on 1st January. And then, next July, VAT will also be raised. What all of these three moves have in common is that they are going to scoop domestic demand out of the economy. The first, in the form of interest payments to those who hold Spain's external debt, and the other two in order to reduce the government fiscal deficit. That is, there will be no growth benefit from any of these moves, quite the contrary, which is why I say, Spain isn't just being left behind, it is actually travelling backwards.


555 said...

Happy New Year Edward!

In light of all the above are those consensus forecasts of 0.5-1.0% contraction for Spain in 2010 a tad too optimistic? You give your estimate for Hungarian GDP growth in 2010, what about Spain?

I. De Diego said...

Hello ,

You must understand that Zapatero has learn economy in 2 afternoons (
And one thing he learn is to lie in officials sadistic. We can see today the unemployed in december'09. But also we can see this graphical:
if you see from dec'08 to ene'09 has disappear more than 90.000 unemployed , our economy is magic !!!

They lies , the real unemployed is more than 5,3 millions ( Also is very "funny" to see the divergences between the 3 statistic system ( INEM, INE and EUROSTAT), more than 700.000 unemployed.
Some in Spain we are sure we are going to make a default, the question for as is when?

Remember: "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy"
and "If you have ten thousand regulations, you destroy all respect for the law." W.C.

Regards and happy new year,

I. De Diego

Edward Hugh said...

Hi de Diego,

"You must understand that Zapatero has learn economy in 2 afternoons"

Yes, I remember this one. Hilarious. And shortly afterwards Sevilla was sent home to spend more time with his family.

Edward Hugh said...

Hi Przmec,

"In light of all the above are those consensus forecasts of 0.5-1.0% contraction for Spain in 2010 a tad too optimistic?"

Yep, I guess so. But this is not an exact science. My feeling is minus around 1.5%. I don't expect a complete debacle in the Spanish economy in 2010. It is quite possible 2011 will be worse, especially if the screw is really turned on the fiscal deficit. I think Greece is the place to watch at the moment. This will tell us a lot about what is going to happen in Spain.

Anonymous said...

I read the article in yesterday's FT too. And the article a day or so earlier about ham prices in Spain. Spain now has too many pigs & therefore ham. And who built the new state of the art pig farms? Why of course the property moguls as a fun sideline!!!!!

Were you being serious stating that the housing figures has 'recovery written all over them.'?

This morning I noticed the cost of posting a CD from Spain to any other European country has risen to €4 (from €3.85). Now more than 3.3 times the cost of sending a CD from UK - Spain.

Happy New Year Edward.

Edward Hugh said...

Hello Mark,

Happy New Year to you too.

"Were you being serious stating that the housing figures has 'recovery written all over them.'?"

No, I was only joking, of course.

Anonymous said...

"Spain's trade deficit has in fact deteriorated rather than improving in recent months, so something somewhere isn't working."
Maybe I´m a little dense this morning but ¿doesn´t the graphic show an improvement of the deficit, being that the y-axis is reversed (negative values)?
Sorry if this is a stupid question.

Edward Hugh said...

Hello Anonymous,

"Maybe I´m a little dense this morning but ¿doesn´t the graphic show an improvement of the deficit, being that the y-axis is reversed (negative values)?"

Do you mean the position is better in October versus September. Then yes. But if you look at October compared to June there is a clear deterioration - basically the money the ECB lent to the Spanish government. As the money is tightened again the trade balance and CA balance will improve again, but at the same time the economy will be generally contracting for lack of demand, this is the big problem.

My principle point is that the money has been spent, but nothing done to address the real problem.