Th BdE released its economic bulletin for September 2012. It includes various data on economic indicators as well as a very interesting coverage of deposit developments during the last 12 months.

Although i ‘m sure everyone will have their own ‘favorite’ indicators, i ‘d like to give more attention on some specific indicators that i personally consider important.

First, unemployment developments:


Although during 2010 and 2011 there were some movements of workers from permanent to temporary jobs, ever since 2011Q4 there are clear indicators of the economic situation worsening seriously with job losses increasing in both permanent and temporary contractors.

Furthermore, although less-than-one-year unemployment has been hovering around a narrow band ever since 2009, long-term unemployment is on a strong growth path, increasing from 5.13% in 2009 to 10.42% in 2011 and 12.87% in 2012Q2. Combined with the fact that the most seriously hurt are young and less qualified workers, this development increases the risk of serious social tensions in the short/medium-term future, especially since the economic situation seems to be getting worse. It’s rather naive to believe that a society can manage having a long-term unemployment rate of more than 13% for a long time.

Another indicator is state resources and uses:


Current and capital transfers are growing strongly in 2012, another indicator of the deteriorating economic situation. What is worrying is the path of interest payments (on government debt) which seem destined to reach more than €25bn in 2012, a level around 2.4-2.5% of GDP. Although the level is still low, it should be compared to around 1.6% in 2009, an increase of close to 1% of GDP. Interest payments are clearly on a path to reach at least 3% of GDP which will mean that the Spanish government will need to achieve a permanent primary surplus in order to be able to adhere to the 3% deficit rule.

What is very interesting is the breakdown of foreign trade into individual partners:


Spain has achieved a surplus with the Euro area since 2011, mainly as a result of more than tripling of the surplus with France (from €3bn in 2008 to over €10bn, compared to a deficit until 2007), while the deficit to Germany has been reduced considerably, from -€23.7bn in 2007 to -€8.9bn in 2011 and the trade balance with Italy is now positive. The UK is now a strong net importer of Spanish goods as well as the OECD (at least based on 2012 data so far) with deficits towards the US and Japan dropping to small numbers.

The main sources of deficits are basically China and the OPEC, volumes which are determined more by factors such as global oil prices and the Euro exchange rate, rather than Spanish competitiveness. Even the German surplus seems to be on the path of dropping to almost half what it was during 2011.

In my view, these data show that Spain has managed to reverse its trade deficits and close the competitiveness gap, supported by strong internal demand (import) destruction due to the local recession. Any deficits are with the Eurozone outliers (Germany) or due to oil and China. I think we ‘ve already reached the limits of a mercantelistic growth view for the periphery and genuine stimulus is required for growth to return.

One last point is about the Net International Investment Position:


Spain has managed to lower its portfolio and ‘other investment’ positions significantly since 2011Q1, with portfolio decreasing from -€672bn to -€525bn in 2012Q1 and ‘other investment’ from -€342bn to -€256bn. This was driven by a move of liabilities to the official sector through an increase in the (negative) NIIP of BdE which went from +€39.5bn in 2011Q1 to -€185bn in 2012Q1. As a result, the total NIIP was held steady at -€978bn with a capital flight of more than €230bn (more than 20%) not leading to a severe depression or a euro exit, something which would be nearly certain in a fixed exchange rate regime. This is the most important advantage of a monetary union compared to the latter regime in terms of capital outflows.