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BdE released data on financing in the Eurosystem for October 2012. On the BdE balance sheet front developments are quite positive. Both MRO and LTRO funding of domestic credit institutions was lower (-€33bn) with most of the drop attributed to lower MRO credit (-€23.4bn). Reserves increased a bit with the deposit facility growing to €25.3bn from €21.75bn in September. The main source of lower funding needs were lower Target2 liabilities which dropped €36.2bn to €383.6bn, back to June levels. Deposits to general government remained quite low at €4.4bn. Overall, the BdE balance sheet suggests easing of money market conditions for Spanish banks.

In the case of financing to the private sector (households and non-financial corporations) developments were mixed. September effective lending flow for households was still quite negative at €2.84bn (down a bit from €3.83bn during August) with housing dropping €2bn, while NFC lending actually registered a positive effective flow of €1.06bn after a strong drop of €11.17bn in August. This made the total quarterly drop much lower and allowed the Spanish economy to register a mild GDP drop. It will be interesting to see if this change persists in the coming months.

BdE published its monthly bulletin for July. Although all of the tables are quite interesting, i will focus on the GDP and money market statistics.

The economic deterioration is quite clear. Fixed investment shows an accelerating decline while final consumption has now turned negative, although not at levels seen in 2009. Government consumption is declining strongly, making a significant negative contribution to growth, something which is certain to become stronger after the July austerity measures and the bailouts of regional governments (which require further cuts in regional budgets). Exports have been the main source of demand for the Spanish economy but even they show a clear pattern of decline (with growth in the Euro area turning negative), lowering the prospects for the general economy.

More detailed data show that the decline in investment is not confined to construction anymore but includes other sectors as well. The decline in exports growth can mainly be accounted by goods, although services are also showing signs of trouble.

BdE projections for Q2 are negative:

«On preliminary estimates, based on still-incomplete information, economic activity in Spain fell again in Q2. The pace of decline was estimated to be sharper than that of the two previous quarters, with a quarter-on-quarter rate of change of -0.4%. National demand fell off more markedly than in the previous quarter (-1.2% against -0.5%), since household spending and general government demand shrank at a quicker pace. As has been the case in recent years, net external demand softened the adverse impact of the decline in national demand on GDP, as it made a positive contribution of 0.8 pp, up on that of the previous quarter, thanks to a moderate pick-up in exports. In year-on-year terms GDP declined by 1%, set against -0.4% in Q1.»


The money market data show that conditions in Spain have worsened in May and June. Unsecured financing seems to only be available for terms up to one month while secured financing up to 3 months. Unsecured loans interest rates increased from 0.48% to 0.83% while repo rates from 0.20% to 0.32% for 1 month, 0.21% to 0.77% for 2 months and 0.45% to 0.93% for 3 months. It is clear that counterparty risk has increased heavily and lenders are anticipating troubles in the summer.

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Kostas Kalevras

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