Having looked at the travails and economic woe of Italy in the Euro area it is time to look at the other side of the ledger which is the recent economic improvement in Spain. As you can see the latest official economic growth data was strong.
The Spanish economy recorded a quarterly growth of 0.8% in the second quarter of 2016. This rate is similar to that recorded in the first quarter. The growth compared to the same quarter last year stood at 3.2% compared to 3.4% in the previous quarter.
In these times sustaining an economic growth rate of over 3% is good news indeed. This new better phase for Spain began in the middle of 2013 and was such that by the beginning of 2014 quarterly economic growth was 0.4% and it ended that year with it at 0.9%. However if we use 2010 as 100 we see that in the second quarter of 2013 the level of GDP (Gross Domestic Product) had fallen to 94.6 which is a long way below the previous peak of 104.36 in the second quarter of 2014. A decline of that size over such a time period brings the phrase economic depression into play and if you think on those terms whilst the situation is much better now with the latest data being 102 you see that Spain whilst doing well currently has not regained the lost ground fully.
Inflation is low
Today’s official data tells us this.
The annual change in the CPI in September is 0.2%, three
tenths above that registered the previous month….. The annual rate of core inflation decreased one tenth to 0.8%…. The monthly variation of the general index is 0.0%.
There was a time when annual economic growth of around 3% and little or no consumer inflation was seen as a form of economic paradise. Apparently no more according to the Financial Times.
Spanish inflation disappoints as prices hold steady……The reading will disappoint eurozone-watchers who expect the single currency area to record a steady rise in inflation over the coming months,
It will not disappoint Spaniards who will welcome news like this.
Inflation was pushed down by a 2.8 per cent fall in housing costs last month, while transport and recreation costs also fell.
Appalling isn’t it? Who wants things to be cheaper? Of course as it demonstrated over the Marmite issue the FT does not seem to want them to be more expensive either! But let me point out that Spaniard who like chicken, lamb,pork and fresh vegetables will welcome the fact they are cheaper than this time last year. They will be less keen on potatoes which have risen in price by 14.7% over the past year and are now presumably the favourite vegetable of Eurozone watchers and the ECB,
The Spanish do not use what we call CPI as their headline and the equivalent to our was also steady on the month and rising at an annual rate of 0.7%.
If we look at wage costs it is also for the best that inflation is low. These are for the second quarter of 2016.
The wage cost per worker per month increased by 0.1% and amounted to 1,943.01 euros on average.
This is an erratic series but is we compare to the same quarter in 2015 (1941 Euros) and 2014 (1929 Euros) there has been very little wage growth.
The Bank of Spain
The latest monthly bulletin is upbeat on the current state of play in the Spanish economy.
The information available on the Spanish economy points to a continuation of the expansionary course of activity, at a quarter-on-quarter rate in Q3 which is expected to be 0.7%. …In 2016 as a whole, GDP growth in the Spanish economy is expected to rise to 3.2%, an upward revision of 0.4 pp on the June projections
Also it is upbeat on the future although it cannot resist blowing its own trumpet.
In the two years spanning 2017-18, the expansion of the Spanish economy is expected to run further, continuing to be underpinned by comfortable financial conditions associated with the prolongation of the expansionary monetary policy stance, by the headway in the ongoing deleveraging by private agents (meaning that additional reductions in indebtedness have an increasingly less adverse impact on activity), and, as the projection period unfolds, by the foreseeable strengthening of export markets.
What do other surveys say?
The Markit PMI (Purchasing Managers Index) was positive about the service sector.
Spanish services activity continued to grow at a solid pace during September, supported by a faster increase in new business. Companies also remained optimistic of further rises in activity over the coming year.
Also a pick-up in manufacturing was seen.
September saw growth momentum in the Spanish manufacturing sector recover somewhat as output, new orders and employment all rose at sharper rates than in August.
This is also boosting the Spanish economy as the numbers below show.
Total expenditure on behalf of international tourists that visited Spain in August stood at 10,354 million euros, an increase of 3.8% compared with the same month last year.
There will of course be worries about whether growth from UK tourists (21% of the total so far in 2016) can be maintained with the lower value of the UK Pound. Also there does seem to have been a move from places that have had terrorist attacks.
Expenditure by tourists from France increased by 9.1%
This is a ying and yang type situation as whilst it has improved the situation is still bad.
The unemployment rate stands at 20.00%, which is one point less than in the previous quarter. In the last year the rate has fallen by 2.37 points.
Also the Bank of Spain is optimistic looking forwards.
Turning to the labour market, jobs are expected to continue to be created at a high rate during the projection period, with low growth in apparent labour productivity, as is habitual in upturns in the Spanish economy. Job creation will allow further reductions in the unemployment rate, which is expected to stand at slightly below 17% of the labour force at end-2018.
The productivity bit is troubling though isn’t it? Also there are problems with the participation rate which is flattering things.
However, in the current economic recovery in Spain, the participation rate has continued to decline, falling by slightly more than 0.5 pp to 59.4% since the employment creation process began. The pattern is particularly striking among Spanish men…
Those worried about youth unemployment will view this next bit with trepidation.
By age group, the decline in the participation rate of Spanish nationals has been concentrated among young people (16 to 24 years), although more recently it has also been observed, to a lesser extent, in the 25 to 34 age groups
The hope is that they are studying and improving themselves, the danger is that they get used to not being involved in the labour market.
The economy of Spain is in a much better phase and once again it has followed the timing of the UK improvement. On that subject there are solid links itemised by the Bank of Spain below.
In the specific case of tourism, the British economy accounts for 21% of total receipts……The United Kingdom is less important in comparative terms as a destination for Spanish goods exports (accounting for around 7% of the total)….. Spain’s bilateral commercial transactions with the UK economy yield a surplus of almost 1.5% of GDP.
As to more domestic matters I note that credit from banks to businesses has improved from the annual rate of -8% early in 2013 but is still falling. If we look at the source of “trouble,trouble,trouble” before then whilst quarterly growth in house prices was 1.8% in the second quarter of this year annual growth was a relatively sedate 3.8%.
Perhaps Spain should continue without having a government as it seems to be working out as well as it did for Belgium.