It has been a while since we have taken a look at the economy of Spain so let us take a moment to reflect on the background here.
The Spanish GDP registered a variation of 0.4% in the fourth quarter of 2020 compared to the previous quarter.
Year-on-year GDP variation stood at ─9.1%, compared with -9.0% in the previous quarter.
Throughout 2020, the GDP at current prices was 1,119,976 million euros, 10.0% lower than in 2019. In terms of volume, the GDP registered a variation of −11.0% in 2020
compared to the previous year. ( INE)
So the economy grew at the end of 2020 but was still 9.1% smaller than when the year began and there had been a sharp dip as we note that if we look at the whole year it was 11% weaker.
This means that as we stand the last decade has turned into a lost one. If we look back to 2010 we see that the economy is now about 1% larger after what has been a tumultuous decade. The Euro area crisis saw a loss of 5% of GDP which was replaced by a strong period with average annual growth peaking at 3.8% and the economy being around 16% larger than at the nadir or 11% from the beginning. So it has been quite a journey.
We can add an extra bit by noting that the construction sector was hit hard again at the end of last year.
The gross value added of Construction varied by -18.2% compared to the same quarter of
2019, which is 7.2 points less than in the previous quarter.
Also let me give INE credit for emphasising this as the impact on the labour market.
In year-on-year terms, the number of hours
actually worked decreased one tenth to -6.3%.
Yesterday Markit produced a strong business outlook report.
Spanish companies showed in February a much
greater degree of confidence with regards to the future,
with activity, profitability and employment prospects all
brightening since last year.
“Underpinning the optimism are genuine hopes that the
worst of the pandemic – and the associated economic
restrictions – is coming to an end, with firms widely
expecting a strong economic bounce-back.
However there were worries about tourism.
“That said, there remains inevitable uncertainty on how
the next few months will evolve, especially around
foreign tourism, an important contributor to the Spanish
Regular readers will recall that when the pandemic began my major fear for Spain’s economy was tourism. Earlier this month we got a further update on how that was playing out.
Spain received in January the visit of 434,362 international tourists, 89.5% less than in the same month of 2020. ( INE)
So quite a difference to the previous pattern which was for 4.1 to 4.2 million in the two preceding years. Was there a Brexit impact? At first it looks like that as the fall of UK visitors was the largest at 96.7% but it is also true that the Nordic and US falls we very similar so on the end definitely maybe.
In terms of the pandemic Spain has been doing better than other parts of Europe with numbers falling. It was also making better progress with vaccinations but now of course we wait for the implications of this.
MADRID (Reuters) – Spain will stop using AstraZeneca’s COVID-19 vaccine for at least two weeks, the government said on Monday, joining a growing list of European countries putting the brakes on the shot over concerns about possible side effects.
This is a hope for the economy going forwards and the Bank of Spain has been looking into the state of play.
Indeed, from January to September 2020 (the latest available figure), household saving was around 3.5 pp of GDP higher than observed, on average, in the first three quarters of the last five years both in Spain and the euro area.
However they are relatively downbeat on the prospects so let us analyse their thinking.
First, a major portion of unsatisfied consumption in recent
quarters attributable to the restrictions is spending on
services, which generally cannot be deferred.
So it seems they at least will not be making extra restaurant and bar visits.
Second, the extraordinary saving reservoir built up since
the onset of the pandemic is concentrated mainly in
higher incomes, whose marginal propensity to consume is
I give them credit for this because central bankers normally run away from this sort of thing. Perhaps it is because we are looking at research rather than the pronouncements of leaders. They also have the courage to point out that some will have been hurt badly in economic terms.
Lower-income households do not only have a
lower saving capacity; in fact, the increase in saving over
recent quarters might have been more limited or even, in
some cases, non-existent despite the fact that the public
support measures may have contributed to sustaining
these households’ incomes.
Also there may be concerns that there will be a price to pay.
Lastly, the economic literature also emphasises the
possibility that households may decide to maintain a
relatively high level of saving because they foresee future tax rises in response to the notable increase in public debt
in this crisis (the Ricardian channel)
The whole position has been really rather like the Helicopter Money we have thought about other the years with one exception.The case for Helicopter Money was that it would be seen as a windfall and immediately spent.In this instance people have been given the money and stopped from spending it
The Spanish Banks
There is another curiosity from the above.
A significant portion of this excess saving has built up in the
form of bank deposits
In a world of negative interest-rates when the banks can get funding from the ECB at -1% they do not particularly want deposits but have ended up with a bit of a tsunami of them.
They are not getting much relief from house prices.
The annual variation rate of the Housing Price Index (HPI) decreased by two tenths to 1.5% in the fourth quarter of 2020. This is the lowest since the first quarter of 2015.
After the previous boom and bust it may be a case of once bitten and twice shy. Also even those numbers may be flattering as this bit look s odd.
By housing type, the rate of new housing reached 8.2%, seven tenths below that registered in the previous quarter.
I am no expert in the exact details of the Spanish property market but can tell you there have been issues in the UK in dealing with new houses. With an old house you have the benchmark of past prices but new ones of course do not.
This is an issue we have noted before has a banking element and the Bank of Spain has been looking into this.
Turkey has been identified as a material country for the Spanish banking system by virtue of BBVA Group’s ownership interest in the Turkish bank Garanti
(49.85% of its capital). Garanti is Turkey’s second largest private bank and the fifth largest if State-owned banks are included. In 2020, Garanti accounted for 8.1% of total BBVA Group assets, while its €563 million contribution to BBVA Group net profit represented 14.3% of total profit generated by the Group’s business areas as a whole (€3.9 billion), excluding the corporate centre.
As you can see we were in a situation where the outlook looked relatively bright for Spain.The pandemic was improving and the vaccine roll out was progressing raising hopes for tourism later this year. Whilst Spain had a deeper fall than many of its peers we know that it can grow at what is a fast rate for these times. A question mark has been placed against this with the new vaccine decision.
If we now switch to a longer-term analysis though I was reminded of the work of the late Ed Hugh warning about the demographics by this.
While the number of births has shown a constant downward trend for several years now, this
decline was further accentuated nine months after the confinement of the Spanish population
during the first state of alarm due to COVID-19.
Thus, in November 2020 the interannual birth rate fell by more than 10%, reaching decreases
of more than 20% in December 2020 and in January 2021, according to INE estimates.
They went further here.
Specifically, only 23,226 children were born in the month of December 2020. This was 20.4% less than in the same month of 2019 and the lowest monthly value since the INE statistical series began, in the year 1941.