We have an opportunity to peer under the economic bonnet of one of the swing states in the Euro area. We have seen Spain lauded as an economic success followed by the bust of the Euro area crisis and then it move forwards again. But 2020 has proven to be another year of economic trouble and that theme has been added to by this morning’s data release.
The monthly variation of the seasonally and calendar adjusted general Retail Trade Index (RTI)
at constant prices between the months of September and August, stood at −0.3%. This rate was 1.7 points lower than the previous month. ( INE)
So we have a fall when if we follow the official view of recoveries from the pandemic we should be seeing the opposite. Then we note that relative to August there has been a much larger decline. The breakdown is below.
By products, Food remained the same (0.0%) and Non-food products declined by 0.6%. If the latter is broken down by type of product, Household equipment decreased the most (−3.7%).
The one category which rose was personal equipment which was up 2.3%.
If we switch to the annual picture we see this.
In September, the General Retail Trade Index, once adjusted for seasonal and calendar effects, registered a variation of −3.3% as compared with the same month of the previous year. This rate was four tenths lower than the one registered in August.
In a by now familiar pattern car fuel sales are down by 9.2% and after them the breakdown is as follows.
If these sales are broken down by type of product, Food
decreased by 2.7%, and Non-food products by 3.1%.
So unlike in the UK the Spanish are not eating more. After the news we have looked it sadly it is no surprise that jobs are declining.
In September, the employment index in the retail trade sector registered a variation of −3.0%
as compared to the same month of 2019. This rate was three tenths above that recorded in August. Employment decreased by −4.9% in Service stations.
If we look at the structure of the sales we see that small chain stores have been hit hard with sales down 14.3% on a year ago meaning they are only 88.3% of what they were in 2015. There has been a switch towards large chain stores who are 2.4% up in September on a year ago and some 17% up on 2015.
Looking at the overall picture the “Euro Boom” has pretty much been erased as we note that retail sales in September are only 2.2% above 2015. These numbers are not seasonally adjusted and may give the best guide because if there has been a year not fitting regular patterns this is it. We get another clue from the numbers from the Canary Islands where volumes are 13.5% below a year ago and the overall index is at 87,5. I am noting that because it gives us a proxy for the tourism effect, or in this instance the lack of tourism effect. Regular readers will recall we feared that this would be in play when the Covid-19 pandemic started and we can see that it has.
The Bank of Spain and the ECB would of course have turned to these figures first.
The number of mortgages constituted on dwellings is 19,825, 3.4% less than in August 2019. The average amount is 134,678 euros, an increase of 4.0%.
They will have been disappointed to see the number of mortgages lower but pleased to see an increase in mortgage size which offers the hope of more business for their main priority which is the banks and may even offer a hint of house price rises.
One factor of note is that if we look at the remortgage figures we see a different pattern in terms of fixed to floating mortgage rates than we have become used to.
After the change of conditions, the percentage of mortgages
fixed interest increases from 19.0% to 31.2%, while that of variable rate mortgages decreases from 80.4% to 59.7%.
As to house prices these are the most recent numbers.
The annual rate of the Housing Price Index (HPI) decreased one percentage point in the
second quarter of 2020, standing at 2.1%.
By housing type, the rate of new housing reached 4.2%, almost two points below that
registered in the previous quarter
So we still have growth and the central bankers will be happy with an index that is at 126.8 when compared with 2015. Their researchers will be busy enhancing their career prospects by finding Wealth Effects from this whilst nobody asks why all the emails from first-time buyers saying they cannot afford anything keep ending up in the spam folder.
Last month the Bank of Spain told us this.
Under these considerations, the economy’s output would fall by 10.5% on average in 2020 in scenario 1, and by up to 12.6% in the event that the less favourable epidemiological situation underlying the construction of scenario 2 were to
materialise. That said, the pickup in activity projected for the second half of this year, following the historic collapse recorded in the first half, would have a positive carry-over
effect on the average GDP growth rate in 2021, which would reach 7.3% in scenario 1, while remaining at 4.1% in scenario 2,
With the pandemic storm clouds gathering around Europe we look set for scenario 2 of a larger decline in GDP followed by a weaker recovery. Also if you are in an economic depression then how long it lasts matters as much as how deep the fall is.
In any event, at the end of 2022, GDP would stand some 2 percentage points (pp) below its pre-crisis level in
scenario 1, a gap that would widen to somewhat more than 6 pp in scenario 2.
It is a bit like wars which are always supposed to be over like Christmas and like a banking collapse where we are drip fed bad news. Speaking of the banks there is plenty of bad news around. We can start with the Turkish situation.
Turkish debt held by European banks via BIS – $64 billion in Spanish banks. – $24 billion, in French banks. – $21 billion, in Italian banks. – $9 billion, in German banks. ( DailyFX )
Then there was also this earlier this week. The Spanish consumer association took th banks to court over past mortgage fees.
Those affected do not need to initiate an individual lawsuit, with the costs and time that this entails, but can directly benefit from the success of the Asufin class action lawsuit.
So, as previously indicated, those 15 million mortgages may recover up to an average of 1,500 euros without the need to litigate. ( El Economista)
I doubt that is the end of the story but it is where we presently stand.
The situation looks somewhat grim right now and it has consequences.If we look at the labour market we have learned that unemployment as a measure is meaningless so here is a better guide.
Total hours worked would fall very sharply on average in 2020: by 11.9% in scenario 1 and 14.1% in scenario 2. Although the rise in this variable, which began
with the easing of lockdown, would continue over the rest of the projection horizon, the total number of hours worked at the end of 2022 would still be 4.5% and 8.3% lower than before the COVID-19 crisis under scenarios 1 and 2, respectively. ( Bank of Spain)
Also the public finances will be doing some heavy lifting.
.As regards public finances, it is estimated that the general government deficit will increase sharply in 2020, to stand at 10.8% and 12.1% of GDP in each of the two scenarios considered…….Public debt, meanwhile, would increase in 2020 by more than 20 pp in scenario 1 and by
some 25 pp in scenario 2, to stand at 116.8% and 120.6% of GDP, respectively.
Of course debt affordability fears are much reduced when some of your bonds can be issued at negative yields and even the ten-year is a mere 0.17%.
As to the banks the eyes of BBVA and Banco Santander will be on developments in Turkey right now.
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