Will ECB QE end the Spanish economic recovery and boom?

Today in a topic allied to the nicer spring weather that has recently arrived let us go off to Spain where the economic sunshine is shining right now. Regular readers will be aware of my theme that contrary to much conventionAL economic thought and media scaremongering  about what they call deflation and I call lower prices the economy of Spain ended 2014 and started 2015 strongly. In other words lower prices have provided an economic boost which is very welcome after the previously troubled period. I first discussed this on the 29th of January and followed it up on the 27th of last month when the Bank of Spain announced an upgrade in its 2015 growth forecast due to this.

the decline in prices

So with economic growth expected of 2.8% this year and 2.7% next Spain will be hoping to put a dent in the problems created by the economic depression which previously engulfed it.

Today’s Numbers

The business surveys conducted by Markit in March as part of its Purchasing Managers Indices are very upbeat indeed.

The headline seasonally adjusted Business Activity
Index rose to 57.3 in March from 56.2 in the
previous month to signal a sharp increase in
service sector output, and one that was the
strongest since last August. Activity has now
increased in each of the past 17 months.

If we look in to the details we see that the good news keeps on coming.

The rate of job creation quickened for the fourth
successive month and was the sharpest since
November 2007.

Also according to this survey the outlook is bright.

The highlight from the latest Spanish Services PMI
is the sharpest monthly expansion in new business
for almost 15 years as improving economic
conditions encourage customers to commit to

What about employment?

Yesterday the Spanish labour ministry produced good news on this front too. From El Pais.

Social Security affiliations, considered a measure of job creation in Spain, grew an average 160,579 last month, making it the best March since 2001, when the records began being kept.

If we look at 2015 overall we now see this.

A total 199,902 people left the Social Security system in January, while 96,909 signed up in February, leaving a net number of nearly 60,000 affiliations for the first three months of the year, according to contributors’ figures.

So if the social security numbers are any guide some spring sunshine is hitting the employment numbers in a welcome development. This also carried through into the registered unemployment numbers.

Meanwhile, the number of jobless claims in late March stood at 4,451,939 after dropping 60,214 from February. The March figure represents the biggest drop for this month since 2002, according to the ministry.

What is not to like about rising employment and falling unemployment?

Rising consumer confidence

This is illustrated by the consumer confidence figure of the Spanish CIS which rose to 100.4 in March. This has been rising strongly over the past year. Via Google Translate.

In relation to March last year progress remains very significant; the increase reached 24.1 points,

A factor in this must be the improving employment situation.

Indeed this number is even stronger than in the housing boom which preceded the credit crunch. I am not so sure about that! But the outlook is currently good.

The scale of the Spanish depression

All of the hopeful news above needs to be put into perspective as the trends for employment and unemployment are good and positive but they come from a grim starting point. Also it is much better to look at unemployment as I am afraid that registered unemployment as a measure is easier to manipulate as I have regularly pointed out when looking at the UK. The catch is that we find ourselves awaiting timely data.

The unemployment rate stands at 23.70%, three hundredths over that of the previous quarter. Within the last year, the unemployment rate decreased by more than two percent
points, from 25.73 in the last quarter 2013.

The numbers above are from the end of 2014 and what they give us is an estimate of the scale of the economic depression which hit the Spanish labour market. An improvement of 2% in the unemployment rate is ordinarily very welcome but is dwarfed by even the new better rate of 23.7%. Indeed back then there was a worrying nudge higher in quarterly terms.

The number of unemployed persons increases by 30,100 persons this quarter, standing at 5,457,700 persons.

Employment was troubled too as whilst the overall numbers grew the situation was part-timers replacing full-timers. Yet another country could do with a reliable underemployment measure.

ECB policy is a potential problem

You are unlikely to read this much elsewhere is at all so let me explain. The boost to the Spanish economy has come to a large extent from lower prices as the Bank of Spain admitted above. However the very same Bank of Spain is trying to drive prices higher vis the QE (Quantitative Easing) program of the ECB! Accordingly it is harming the economic expansion rather than aiding it. From the Minutes of the March ECB meeting.

 All in all, the Governing Council’s decisions of 22 January 2015 had made a strong contribution in confronting the risks of too prolonged a period of low inflation and had given grounds for confidence.

There did not seem to be too many risks for the Spanish economy and the Spanish people did there. Perhaps the ECB was really thinking of what is the central banking fashion of these times.

Euro area equity markets had continued to perform strongly after the expanded APP announcement.

That is certainly true about the IBEX 35 in Spain which has risen more than 15% in 2015 so far. Also other asset markets have been rising too as of course the Spanish bond market has been pushed higher by the purchases made by its central bank. This morning has seen a by-product of that as for the first time ever Spanish debt has been sold at a negative yield. Marginal perhaps at -0.02% for some six months Treasury Bills but nonetheless negative.

However both the yield above and the 1.17% ten-year government bond yield are really extraordinary if we consider that Spain has an economy growing quickly. Not only are markets being distorted but there are genuine dangers that by raising inflation the ECB will not encourage economic expansion it will cut it.


As the sun shines so regularly in Spain let me welcome the change in its fortunes with this from the Beatles.

Here comes the sun, here comes the sun
And I say it’s all right

Little darling, it’s been a long cold lonely winter
Little darling, it feels like years since it’s been here

Here comes the sun, here comes the sun
And I say it’s all right

However the economic boost provided by the falls in oil and commodity prices and some of the earlier policies of the ECB are in danger of being slowed and maybe stopped by its present burst of QE. What is wrong with economic expansion combined with gently falling prices,after all some of the impact of the oil price on inflation is wearing off on its own as the oil price finds a level (for now at least)? Thus we see that the immediate outlook is good but that for later this year may not be as positive. Shame. Or rather shame on you ECB. It would do better saving its ammunition for future years to deal with the problems that will arrive then. From the overall formal employment report.

This is mainly due to the decrease of working age population (16-64 years old), whose essential cause is population ageing.


Number Crunching

Official intervention seems to have regular misfires as this from The Spain Report points out. Here is an analysis of the Spanish high-speed railway network.


“Either the initial calculations were done badly or they weren’t done at all”, he said: “they didn’t build them thinking about profitability but about the political benefits”.

50-year studies of financial viability carried out by FEDEA show none of the major Spanish high-speed lines comes close to profitability.

Perhaps the most damning part of it was this.

The Madrid–Seville high-speed line is approximately the same length as the Tokyo–Osaka or Paris-Lyon lines, but carries only 3.8% of the passengers each year compared to the Japanese version, or 20% of the passengers compared to the French route.

3.8%? It is a shame in a period which is good for both the Spanish economy and its people that we find ourselves mulling that officialdom is overruling the very same markets which have given it a boost. And their skill set appears, and let’s be polite, to be limited.







6 thoughts on “Will ECB QE end the Spanish economic recovery and boom?

  1. QE do anything ?

    well ofcourse not , never has before has it , we have Japan to look to , they did lots of QE , hows their economy , soar way ?

    So how many year of this recovery does Spain need , and how many will it get , from a brief drop in oil prices


    PS: oh , as if that had anything to do with the Politicos ! hah!

    • Hi Forbin

      Well Japan is still struggling inspite of even changing the name to QQE from QE for its new effort in a Windscale to Sellafield type effort. If you can’t change the results changes the name!

      As to the drop in oil prices well that is not going so well as it has pushed back over US $59 for a barrel of Brent Crude Oil this evening. Up a dollar and a half on the 2014 close so we have this year seen an oil price rise as we stand albeit a small one. Accordingly and sadly the positive effect will fade away.

  2. Great blog as usual, Shaun. Thank you for posting on Good Friday. Your work ethic is amazing.
    Spain’s housing price index showed an annual increase of 1.8% in 2014Q4, up from 0.3% in 2014Q3. The quarterly growth rate was 0.2%. Since there was a quarterly decline of -0.3% in the Spanish HPI in 2014Q1, even if house prices flattened in 2015Q1, the annual increase for 2015Q1 would be slightly above 2.0%. So price change in Spain, properly measured, has not been as negative as the -0.7% March flash estimate for HICP indicates. It is a pity that the Spanish national statistical institute hasn’t chosen to publish its quarterly owner-occupied housing price index as the ONS has.

    • Hi Andrew

      Thank you for the house price data. When you consider all the effort that the ECB is making it seems a bit thin doesn’t it? Not that I am championing pushing house prices higher merely looking at it like a central banker would. At these levels much Spanish mortgage lending must still be underwater. The bad bank Sareb still has its problems.

      “The Management Company for Assets Arising from the Banking Sector Reorganisation (Sareb) has proceeded, following accounting consultation with the Bank of Spain, to report the write-off of €719 million against 2014 results. The portfolios that have been paid off comprise loans entailing difficult recovery thereof transferred to Sareb, such as those from insolvent companies which were initially conferred without an actual guarantee, as well as equity loans.

      Subsequent to the provision, the year ended with a negative net result of €585 million. Had this write-off not been anticipated, net losses would have been reduced to €45 million.”

      At this level of the UK Pound £ versus the Euro there may well be some UK buyers out in 2015 which may boost some areas.

  3. Hi Shaun, you seem to have come partially around to my thinking as outlined here to Pavlaki on 27 March https://notayesmanseconomics.wordpress.com/2015/03/27/lower-prices-are-providing-an-economic-boost-for-the-uk-spain-and-ireland/#comments but as I say there I believe it’s part of a bigger picture related to oil price as you identify but also the silly “excess reserves” fine of 0.2% which I thought in March would result in more (too much) investment money being channelled into the economy of the EZ in general which I would include Spain in (although not Greece and maybe not Italy). Now I’ve been seeing Euro flows to the US. It’s beginning to look like the banks are buying US bonds instead of pushing their excess money into the EZ economy. I even read something where US corporates are starting to issue bonds denominated in Euros and then hedging back into the US dollar.

    If this turns into a trend then the QE effect seems likely to inflate the dollar with little effect on EZ inflation, thereby helping EZ (Spanish) exports and EZ economies. It may not happen as you think, but I think the Fed will have a lot to say before long about a steadily appreciating dollar……

    • Hi Noo2

      The banks these days when given the choice of “a hard or soft option” as The Pet Shop Boys put it always take the soft option aka easy money. So it goes into higher yielding US debt which creates interest profits for bankers if it goes right and currency losses for taxpayers if it goes wrong on any scale!

      i think that the US Employment Report slowed the US Dollar surge for now and the Fed just seems confused as one talks of interest-rate rises and another of QE4. Meanwhile as I have replied to Forbin the oil price is seeing a bounce and what it does next will determine most of 2015.

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