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The Bde released its economic bulletin for November 2012. A few data sets that are of interest are the following (I will try not to duplicate previous comments which were made based on data of the September Economic Bulletin):


The investment outlook is one of definite deterioration both in construction and equipment, especially since 2011Q3. Domestic demand is dropping 3-4%, something which is reflected in demand for imported goods and services. Exports are showing positive rates of growth but reflect the Euro wide recession since the double digit rates of 2010 are now closer to 3%. This is also quite evident in export (by region) data:


After rebounding strongly during 2010 and most of 2011, both EU/Euro and OECD exports are quite stagnant in 2012 with only other regions (China, OPEC, other American countries) providing increased demand. Since most of Spanish exports are towards the first two group of countries, the data (along with current macro projections for the relevant regions) do not provide an optimistic short-term future perspective for an export-led recovery.


Household final consumption deflators are still around 2.5% making a CPI-based REER devaluation rather difficult. What is interesting is the fact that import deflators are more than double export deflators. Depending on the import share of exports this fact could create difficulties in maintaining current export deflators in the long-run without any further drop in employee compensation and/or profits.


Labour force participation rates seem quite constant in the long run which means that changes in unemployment mostly happen because of employment and not participation changes. There’s a worrying trend of outright negative population change during 2012 which could be a sign of emmigration.

Another problem is the fact that all sectors of activity show negative employment changes with industry and construction leading the way with large (double digit in the case of construction) rates.


Even services (which account for the largest part of Spanish GDP) are now in deeply negative territory (-3.5%) which makes finding employment in a different sector (for instance moving from construction to services) extremely difficult. Large unemployment numbers are most likely to persist until domestic demand rebounds substantially.

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.

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Kostas Kalevras

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