Will the Spanish economic boom be derailed by separatism?

There is a truism that political problems invariably follow economic ones. If that is true in Spain at the moment then there has been quite a lag as it was several years ago now that the consequences of the Euro area crisis reached a crescendo. If we look back we see the economy as measured by GDP peaked at 103.7 in 2008 and then fell to 100 in the (benchmark) 2010 as the credit crunch hit. But then the Euro area crisis hit as GDP fell to 96.1 in 2012 and 94.5 in 2013 and the latter year saw the unemployment rate rise above 26%. So that was the nadir in economic terms as a recovery began and saw GDP rise again to 95.8 in 2014 and then 99.1 in 2015 followed by 102.3 in 2016.  So we see that in essence there has been something of a lost decade as earlier this year the output of 2007 was passed as well as a recent strong recovery. If economics was the driver one might have expected political issues to arise in say 2014.

What about now?

At the end of last week the Bank of Spain published its latest projections for the economy. Firstly it is nice to see that they have fallen in line with my argument that the lower oil price provided a boost to the Spanish economy mostly via consumption.

In particular, compared with the expansionary fiscal policy stance of the period 2015‑16 and the declines in oil prices observed between mid‑2014 and 2016 Q1

Of course that is a clear contradiction of the official inflation target of 2% per annum being good for the economy but I doubt many will point that out. You may note that they try to cover off the consumption rise as a response to the crunch.

Moreover, the expansionary effect resulting, in recent years, from certain spending (on consumer durables) and investment decisions being taken after their postponement during the most acute phases of the crisis is expected to gradually peter out.

Factoring in everything it expects this.

Indeed it is estimated that, in 2017 Q3, GDP growth could have decelerated somewhat, as anticipated in the June projections. As a result of all the above, it is estimated that, after growing by 3.1% this year, GDP will grow by 2.5% in 2018 and by 2.2% in 2019.

A driver of the economic growth seen so far has been export success.

Accordingly, for example in 2016, GDP growth was more reliant on the external component than had been estimated to date.

Also there are hopes that this will continue.

The data on the Spanish economy’s external markets in the most recent period have been more favourable than was expected a few months ago.

Although there is a worry which will be familiar to readers of my work.

owing to the exchange rate appreciation effect,

Oh and there is a thank you Mario Draghi in there as well!

by the continuing favourable financial conditions.

What could go wrong? Well……

Turning to the risks surrounding these GDP growth projections, on the domestic front, the political tension in Catalonia could potentially affect agents’ confidence and their spending decisions and financing conditions

This issue is currently playing out in the banking sector where some are fearful of no longer being backed by the Bank of Spain and hence ECB. Banco Sabadell has just announced it will have a board meeting this afternoon to consider moving its corporate address to Alicante in response. Of course if you wanted custom in Catalonia this is not the way to go about it as we mull the words of the Alan Parsons Project.

I just can’t seem to get it right
Damned if I do
I’m damned if I don’t

What about the business surveys?

Firstly the Euro area background is the best it has been for some time.

The final September PMI numbers round off an impressive third quarter for which the surveys point to GDP rising 0.7%.
The economy enters the fourth quarter with business energized by inflows of new orders growing at the fastest rate for over six years and expectations of future growth reviving after a summer lull.

However that sort of economic growth has been something of a normal situation for Spain in recent times. Let us look at the detail for it.

New orders rose across the service sector for the fiftieth month running, with the latest expansion the strongest since August 2015. Where an increase in new business was recorded, this was attributed by panellists to improving economic conditions.

From this there was a very welcome side-effect.

Responding to higher workloads, service providers increased their staffing levels solidly in September

If we move to the economy overall then we see this.

Taken alongside faster growth in the manufacturing sector, these figures point to a positive end to the third quarter of the year. Over the quarter as a whole, we look to have seen only a slight slowdown from Q2, suggesting a further robust GDP reading is likely. IHS Markit currently forecasts growth of 0.7% for Q3.”

Today’s Euro area survey on retail sales does not reach Spain but yesterday’s retail sales release shows they are struggling relatively with annual growth in August at 1.7% but retail sales are erratic.

Population and Demographics

There has also been some better news on this front as highlighted by this below.

The resident population in Spain grew in 2016 for the first time since 2011. It stood at 46,528,966 inhabitants on January 1, 2017, with an increase of 88,867 people.

This matters because the decline in population exacerbated a problem highlighted by Edward Hugh back in 2015. One of his worries was the ratio of births to deaths which had been shifting unfavourably and was -259 last year. This led to this and the emphasis is mine.

Furthermore, INE projections suggest the over-65s will make up more than 30% of the population by 2050 (almost 13 million people) and the number of over-eighties will exceed 4 million, thus representing more than 30% of the total 65+ population.
International studies have produced even more pessimistic estimates and the United Nations projects that Spain will be the world’s oldest country in 2050, with 40% of its population aged over 60. At the present time the oldest countries in Europe are Germany and Italy, but Spain is catching up fast.


Spain is an example of what is called a V shaped economic recovery as it has bounced strongly as opposed to the much sadder state of play in Greece which has seen an L shaped or if you prefer little bounce-back at all. If you were using economics to predict secessionist trouble you would be wrong about 100 times out of 100 using it. However if we move to what caused trouble in Greece when it had its recent political crisis we see that the driving force was the monetary system of which a signal is that the ECB is still providing over 32 billion Euros of Emergency Liquidity Assistance to it.

So as we stand the impact on the Spanish economy is small as businesses may be affected but moves if they physically happen will boost GDP and shift mostly from one region to another. However if there is any large movement of funds then all this changes as eyes will turn to the banking system at a point when people are wondering if and not when the Bank of Spain will step in? After all would it help a bank that is no longer in Spain? There are rumours that UK banks could have gone to the ECB if they had back in the day thought ahead about their locations. But imagine the scenario if a bank in Catalonia tries to go to the ECB when there is doubt over whether it was in the European Union?

Personally I would expect, after a suitable delay, the ECB would step in but the price would be high as Greece has found out from the years of the Troika which have been so bad they change their name to the institutions.


I have a morning appointment with my knee specialist so I intend to post an article but it could easily be somewhat later than usual.





12 thoughts on “Will the Spanish economic boom be derailed by separatism?

  1. Shaun,
    Has Spain cured Its property glut and none performing loans plus high youth unemployment? I think the jury still out on its banking problems as UK Brexit taking centre stage for the rest of this year while Germany preoccupied as it cobbles together its Jamaican coalition ( colours of the various parties including greens).

    • hmm, so with a large retired set of pensioners and what youth they have mostly out of work …..

      Is this the future of EU ?


      seems more popcorn is needed 🙂

  2. Hello Shaun,

    Catalunya may well be crushed but thats politics and the EU will support Spain and the Union no matter what ……

    so if Spain needed more cash it will get it .

    As for more people being the answer may I suggest that Spain adopts Nigeria and makes all it citizens Spanish Nationals ?

    After all Nigeria is projected to surpass the 300 million people mark by 2050 and a tenth of that will boost the Spanish economy no end .

    Whats not to love ?


    • I know that we don’t do politics on this blog, but I couldn’t help laughing at one thing.
      Did you notice that the whole political establishment has turned out to condemn a referendum based on the derisory turnout, in the face of extreme hostility, of 42.5%?
      This has to be compared with the overwhelming and democratic turnout for the election of the current European parliament of, er, 42.6%…

  3. Great blog as always, Shaun.
    Did the Spanish government make any moves to roll its debt into longer-term instruments prior to the Catalan referendum?
    Former Canadian PM Paul Martin was the Canadian Finance Minister during the October 1995 referendum on Quebec sovereignty. In his memoir Hell or High Water he says that the particularly ugly combination of a high federal debt concentrated in short-term instruments and the bunching of a lot of renewals in the period immediately following the referendum meant that in a worst-case scenario, the government might run out of money by December. The Finance Department started quietly rolling its debt into longer term instruments prior to the referendum and continued to do so even after the Quebec sovereigntists very narrowly lost the vote.
    The Canadian federal debt-to-GDP ratio for 1994-5 was 66.4%, more than double what it is today. A country that doesn’t keep its debt under control is much more vulnerable to all incoming shocks than one that does. To his credit, Martin also recognized that danger and had brought the debt-to-GDP ratio down to 34.0% by 2005-06, his last year in office. I don’t know what the Spanish debt-to-GDP ratio would be looking just at net federal debt, but the IMF estimates of the total gross government debt-to-GDP ratio show Spain as being more heavily indebted than either Canada or the UK. It is probably too high for comfort.

    • indeed money is the thing here

      my understanding is that the Catalans are fed up of paying more than their fair share and would be far better off without the rest of Spain,

      if so then Spain will try valiantly to hold onto the Catalunya milch cow because if it does not …….

      Well they are bust now and if the Catalans leave , they will be even more bust , potentially causing another bank run , more ECB QE and the like .

      and the Catalans? prepare for economic warfare I’d say , of the nasty kind .

      Greece would be a walk in the park in comparison


    • Hi Andrew and thanks

      Your question made me look again at the Spanish Treasury website and maybe a little but not on any grand scale is an answer to your question. They had at the worst an average maturity of 6.2 years in 2013 as opposed to the 7.13 now. Also some of the shift will be the issuance of a 50 year bond which helps the average out of proportion to the practical gain. Rather oddly they issued some more of a 2029 stock with a 6% coupon today but they seem to continue issuing stock even if the coupon is way out of phase.

  4. Spains banks are in a worse state than most people realise. The amount of properties built in the bubble was simply breathtaking, I worked with a guy who regularly played golf around the courses in the Murcia region and one day he filmed the view of the coast from the coarse he was on, the shot panned several miles and it was literally nothing but one massive building site, hundreds of thousands of houses and apartments. Who was going to buy them? Who cared when you got virtually free money from the bank and there was a roaring propperty bubble underway?, like Ireland noone asked questions – just build it and they will come!

    Many of these are still unsold and are being marked to “fantasy valuations” on the balance sheets of the banks (or classed as off balance sheet items) that lent against them – the price they would have achieved in the bubble.

    Current prices are by UK standards(insanely overpiced) “reasonable”, but the banks can get away with it because the ECB allows this fraud to continue and will bail them out with “whatever it takes”. As long as northern Europeans(mainly British) buyers continue to buy(they think they are getting a bargain) things will not change, but should interest rates ever rise(don’t laugh) Spain and the rest of the bubblocracy will learn a few lessons that should have been given years ago.

    • Surely if they’re unsold after 10 years they’ll be un-sellable due to structural issues etc… Irony is theyd all have sold if price discovery was allowed to happen a decade ago. Thats 21st capitalism for you!

  5. Shaun, thanks for posting this topical item. I read somewhere that theres a debt story here. They have regional accounting in Spain, but a national debt pile to cover. Apparently although Calalonia is a northern powerhouse it also jas eyewatering debt levels, twice that of Valencia region.
    try markgb.com

    It could be Catalonia want to shirk their debt load or ignore it for the purpose of their “naiive dream state” I’m not anti independence but I suspect there’s egos and ambitions at play.

    Also read that Rajoy was keen to deflect attention from his own ‘backhander” enquiry and policia in Catalunya did that quite well.

    Its never straightforward.

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