Lagarde endorses Spain austerity efforts

Ms. Lagarde endorses Spain's efforts
Ms. Lagarde endorses Spain’s efforts

Spain may not have actually asked for a full bailout but it would probably get one without making any further changes to it’s economic policy.

This is according to Christine Lagarde, IMF managing director, who says Spain is already doing what it would be asked to do if a bailout was to be requested.

The comments, seen by many as an endorsement of Spain’s economic policy, suggest that the struggling country should not need a bailout but would get one if needed.

“When we look at what Spain has already done and is committing to do, there is not much more that we would be asking from Spain if it was in a programme with the IMF,” Ms Lagarde said.

Lagarde also said Spain has already taken steps towards a large deficit reduction and made good progress on labour reforms, healthcare and education. “They have done an awful lot in the last few months,” she said.

A continuing rise in yields on its sovereign debt has fuelled fears that Spain will be asking for support from the IMF and the EU beyond the 100 billion euro bank bailout already agreed.

Spain’s highly indebted regions, which have a combined debt of over 140 billion euros (of which 35 billion matures this year) have become the latest targets in Mariano Rajoy’s government drive to meet it’s deficit reduction target agreed with Europe earlier this year.

On Wednesday, Spain’s economy minister Cristobal Montoro set new limits for the country’s 17 regions insisting that their annual debt must not exceed 15.1 per cent of local GDP. In Andalucía this would be equivalent to a €2.7bn spending cut.

Many of the regions are expected to struggle to meet the 15% mark. Catalonia currently has a debt ratio of 21%, with Valencia close behind with 20%, according to Barclays Capital.

According to the Bank of Spain the average debt as a percentage of GDP of all the regional governments has more than doubled since 2008 (6%) to the end of 2011 when the figure stood at 14%.

GDP falls for third consecutive quarter

GDP contracts for third consecutive quarter
GDP contracts for third consecutive quarter

According to the latest figures released by the National Institute of Statistics Spain’s GDP contracted for a third consecutive quarter confirming the country is still in recession. A technical recession is commonly defined as two consecutive quarters of economic contraction.

Gross Domestic Product (GDP) generated by the Spanish economy registered a real variation of –0.4%, one tenth lower than the previous quarter.

The interannual GDP variation was –1.0%, as compared with 0.4%, for the first quarter. This behaviour was due to the more negative contribution by domestic demand, partly compensated by the positive contribution of foreign demand and order similar to that recorded in the previous quarter.

Euro group leader Jean-Claude Juncker has called on the ECB to step in to help cut Spain’s debt costs.

“We will work in close agreement with the ECB, and we will, as ECB President Mario Draghi said, see results,” Mr Juncker said speaking to press.

“I don’t want to drive expectations, but I must say, we have reached a decisive phase.”

Spain’s consumer price index also increased with an increase of 2.2%, year-on-year. The increase was higher than expectations due to the increase in medicine costs put in place by the government to save money and reduce the deficit.

Economists warned price hikes, and especially a 3% rise in sales tax due, would distort consumer prices while the deepening recession reflected slower domestic demand.

Another year of recession in Spain – says OECD

oecd-logoSpain, with the fourth largest economy in the euro zone, will not come out of recession this year, or next, according to the Organization for Economic Cooperation and Development (OECD).

Spain’s GDP will contract 0.8% in 2013 following a 1.6% contraction in 2012, the OECD said in a report released yesterday. This is in sharp contrast to numbers from the International Monetary Fund (IMF) which forecast 0.1% growth in 2013 and 1.8% contraction in 2012.

In March Prime Minister Mariano Rajoy announced that Spain was unlikely to meet it’s 2012 deficit target and as a result Spain’s borrowing costs have been steadily increasing and are fast approaching 7%, the level that marked the beginning of the end for Greece, Ireland and Portugal.

“A further increase in the risk premium on yields of Spanish government bonds would raise private-sector funding costs and deepen the recession,” the report said.

The report goes on to predict that private consumption will contract 1.8% in 2013 and government consumption by 4.5%, partly due to the conservative governments austerity measures.

With unemployment already at record levels (24.4%), and following Rajoy’s comments that it would get worse this year, the report predicts unemployment will rise to 25.3%.

Overall, the report suggests that Spain will miss it’s deficit target of 5.3% of GDP by 0.1 point and will miss it’s 2013 target of 3% by0.3 percentage points. The total national debt will rise to 81.1% of GDP this year and rise to 84.1% in 2013, the report said.

In 2011 the deficit stood at 68.5% of GDP.

GDP shows quarter-on-quarter drop of 0.3%

INEThe National Institute of Statistics have released their quarterly report for the Spanish economy showing a 0.3% contraction during the first quarter of the year.

The annual and quarterly figures coincide with that of the advance estimate of quarterly GDP that was previously published on 30 April.

Summary of Main Points

Year-on-year growth stands at -0.4%, seven tenths lower than that recorded the previous quarter.

The contribution of national demand to aggregate growth is three tenths lower than that for the previous quarter, standing at -3.2 points, whereas the contribution of external demand to quarterly GDP decreases four tenths (from 3.2 to 2.8 points).

Employment decreased at a year-on-year rate of 3.8%, half-a-point higher than in the fourth quarter of 2011, indicating a net reduction of 655,000 full-time jobs in one year. In turn, the hours actually worked decrease at a year-on-year rate of 3.4%.

The growth in the unit labour cost remains at -2.5% this quarter, three points below the implicit GDP deflator.

Full Report

Gross Domestic Product (GDP) generated by the Spanish economy in the first quarter of 2012 registered a 0.3% decrease with regard to the previous quarter, this rate being similar to that estimated for the previous quarter.

In quarter-on-quarter terms, the growth rate of GDP was -0.4%, seven tenths lower than that recorded the previous period, due to the greater contraction of national demand, and to a lesser contribution of external demand.

Within the European scope, both the European Union as a whole and the Eurozone registered zero growth (0.0%), as compared with the previous quarter. Considering the performance of the main European economies, Germany (0.5%) and Austria (0.2%) registered positive growth, France recorded no growth (0.0%), and the rest experienced decreases in GDP, which were more moderate in the cases of the Netherlands (-0.2%), the United Kingdom (-0.2%) or Spain (-0.3%), and more intense in the case of Italy (-0.8%).

The quarter-on-quarter growth of Spanish GDP in the first quarter of 2012, analysed from the expenditure perspective, reflected a more negative contribution of national demand, which reached -3.2 points, as compared with the -2.9 points from the previous quarter, and likewise, a positive contribution with regard to external demand, which reached 2.8 points, four tenths lower than that registered the previous quarter.

National demand

The more negative contribution of national demand to aggregate activity this quarter was the sole result of the intensification of the contraction of investment in fixed capital, given that final consumption expenditure, aggregated, registered the same growth rate as that recorded the previous quarter.

Household final consumption expenditure saw a half-point reduction in its negative growth, from -1.1% to -0.6%. Considering the different components of expenditure, consumption of services presented positive growth rates, albeit lower than those from the previous period. Conversely, the consumption of goods continued to register negative rates, though in the case of durable and semi-durable goods, a certain recovery was observed this quarter, which determined the global performance of the aggregate.

Moreover, employee remuneration, the main household resource, experienced an increased contraction, reaching -3.3%, which resulted in a reduction in the savings rate thereof.

Final consumption expenditure of the Public Administrations contracted 1.6 points, reaching -5.2%. The decrease in the total purchases of goods and services by these administrations (approximately 13%) contributed particularly to this result. In turn, employee remuneration also decreased, but much more moderately (approximately 1%).

The gross formation of fixed capital experienced a two-point decrease this quarter, dropping from -6.2% to -8.2%. Considering the different types of assets, tangible assets presented a more pronounced drop than that for the aggregate (from -6.5% to -8.8%), with more significant decreases in the case of capital goods than in construction. Lastly, investment in intangible assets recovered from -0.3% to 2.2%.

Demand for capital goods recorded a 3.3-point contraction, from -2.7% to -6.0%, in line with the evolution of the industrial production indicators, turnover and imports for this type of good. The rate of the decrease in investment in machinery (-5.5%) was less intense than in the case of transport equipment assets (-7.3%).

Investment in construction assets experienced a decrease of two points, dropping from -8.2% to -10.2%. Both dwellings and infrastructures and other construction presented decreasing profiles, which were more intense in the case of the latter (-14.3%) than in the case of the dwellings (-5.8%).

External demand

The contribution of the net external demand of the Spanish economy to quarterly GDP dropped four tenths this period, decreasing from 3.2 to 2.8 points. This result occurred as the joint consequence of a deceleration of exports, linked to a greater contraction of imports, though the latter to a lesser extent.

Exports of goods and services saw a three-point slowdown in growth, from 5.2% to 2.2%, in line with the slowed evolution of the economies of the countries to which these exports were sent, mainly in the European Union. By component, a less intense slowdown was observed in the case of goods (from 2.9% to 1.7%) than in the case of services (from 13.9% to 6.5%). In turn, purchases by persons resident in Spain, customary with a more moderate tourist activity, registered a 1.0% decrease, this being the first negative rate recorded since the first quarter of 2010.

Lastly, imports of goods and services experienced a decrease of 1.3 points in its growth rate (from -5.9% to -7.2%), in line with the lower activity level. All of its components presented drops, of a greater amount in the case of services (-6.9%) than in the case of goods (-7.2%). Finally, purchases of persons resident in the rest of the world registered a decrease of 8.7%.


The analysis of the macroeconomic table, from the supply perspective, presented similar features to those published the previous quarter. Thus, moderate growth was recorded in the added value of the primary branches and of services, and more intense decreases in the added value of the manufacturing and construction activities.

The gross added value of the industrial branches experienced an intensified drop in the first quarter of 2012, going from -0.4% to -3.0%, in line with the contracting evolution of national demand, and the moderation of the exports of industrial goods. In particular, regarding the manufacturing industry, the decrease was somewhat more intense (from -0.1% to -3.9%).

In the same way as the demand for assets linked to construction activity, the gross added value of construction saw a 1.6-point increase in its negative growth, from -3.7% to -5.3%. As commented in the section dedicated to demand, the more unfavourable performance of both buildings under construction and other construction yielded this result.

The added value of the services branches saw a slight decrease in growth this quarter, from 0.9% to 0.8%. Within these branches, those with the best results were those linked to information and communications technologies and to trade, in line with the recovery of household expenditure on consumer goods. At the opposite end of the spectrum, a lesser rate of progress was observed in those activities related to tourism and real estate.

Lastly, the primary branches saw a half-point acceleration in the growth of their added values, reaching 0.8%, in accordance with the evolution of the agricultural and livestock activity indicators.


Employment, measured in terms of full-time equivalent jobs, experienced a year-on-year decrease of five tenths, standing at -3.8%. This result indicated a reduction of more than 655 thousand net full-time jobs in one year. On an aggregated scale, the results of all of the branches activity were worse than those from the previous quarter.

In year-on-year terms, construction lost more than 310 thousand jobs, services almost 245 thousand, industry almost 87 thousand, and finally, the primary branches lost more than 13 thousand.

The contraction of occupied employment was registered with greater intensity en wageearning employment (dropping from -3.2% to -4.2%). In turn, non-wage-earning employment presented a less negative growth rate this quarter (going from -3.9% to -0.9%).

The number of hours actually worked by the persons employed in the economy dropped from -1.7% to -3.4% this quarter. The difference between this evolution and that of full-time equivalent jobs was due to the lesser increase in the average full-time working day, which went from 1.6% to 0.4%.

Using the joint consideration of the growth of quarterly GDP and the occupied employment data, it was possible to deduce that the year-on-year variation of the apparent productivity by equivalent job post decreased two tenths, from 3.7% to 3.5%, whereas the growth of the apparent productivity per hour actually worked increased 1.1 points, from 2.0% to 3.1%.

You can access the complete report including charts and graphs here: Quarterly Spanish National Accounts – First Quarter 2012

Spain – GDP contracts in first quarter

The National Statistics Institute have released preliminary figures showing the country’s GDP contracted 0.3% during the first quarter, less than previously expected.

The contraction is the same as for the previous quarter and is 0.1% less than the decline predicted by the Bank of Spain a week earlier.

The interannual GDP variation was –0.4%, as compared with 0.3%, for the previous quarter. This was due to the negative contribution by domestic demand, partly compensated by the positive contribution of foreign demand.

Mariano Rajoy’s conservative government are struggling to convince investors that is can meet it’s deficit targets and get hold of spiralling unemployment. It predicts a contraction of 1.7% this year  and growth of 0.2% in 2013.

Economists predict that things are likely to get worse before they get better pushing unemployment to even more dramatic highs.

These are preliminary results. The complete tables and charts of the Spanish Quarterly National Accounts for the First quarter of 2012 will be published by the INE on May 17th.

Forget The Bond Auction, Spain is an Absolute Disaster

Bond auction appeared successful
Is the ECB propping up Spanish economy?

Well the financial world is awash with reports that the Spanish auctions went well. They did not. And you better believe the ECB and other Central Banks were involved in the buying.

Instead, Wall Street is using the auction (and just about every other announcement) to shred and those who sold calls in their usual options expiration games. This has been the norm for years, but the mainstream financial media continues to find “fundamental” excuses for market action that is clearly just manipulation and nothing more.

Case in point, if the Spanish auction went so well, why are Spanish Credit Default Swaps widening? Ditto for Spanish yields (the ten year is back closing in on 6%).

However, ultimately this auction means next to nothing. Spain is an absolute disaster on a level that few, if any, analysts can even grasp.

How else do you describe a country for which:

  • Total Spanish banking loans are equal to 170% of Spanish GDP.
  • Total Spanish private sector debt is near 300% of GDP.
  • Troubled loans at Spanish Banks just hit an 18-year high of over 8%.
  • Spanish Banks are drawing a record €316.3 billion from the ECB (up from €169.2 billion in February).

By the way, Spanish banks need to roll over 20% of their bonds this year too. Good luck with that. I’m sure it will all work out well. After all, the ECB and IMF have the funds to prop up Spain’s €1 trillion economy.

Oh wait, they don’t. In fact no one does. The IMF’s requests for more funds have been rejected by both the US and Canada (you really think Obama will fund a European bailout during an election year?). And the ECB has already blown up its balance sheet to the point that Germany and the ECB are growing hostile to each other (I’m sure this will work out well too).

Forget the auction and the spin being thrown about. Spain is a disaster. Its banking system is a sewer of toxic debts which the Spanish Government has attempted to fix by either merging insolvent banks together or spreading toxic garbage onto the public’s balance sheet.

This might fly in the US (or at least it has so far) where the economy is more robust and diversified than in Spain. But for a country whose housing bubble dwarfed that of the US and which is already posting unemployment of 24% (the highest in the industrialized world) and youth unemployment of 50%+, it’s a tough sell.

Oh, and Spain’s King decided to take time off from hearing about the Crisis to go elephant hunting. That should go over well with the Spanish populace, which is now facing austerity measures when the country is already in a Depression.

Just wait, once options expiration ends, we’ll be back to the fireworks. In fact, smart investors should take advantage of this ramp job to prepare for what’s coming.

By Graham Summers

Graham Summers is Chief Market Strategist for Phoenix Capital Research.

Article Source: Phoenix Capital Research

Spain on negative outlook

Credit ratings agency, Moody’s, have maintained the A3 bond rating for Spain, it said in a statement.

However, the country is under negative outlook due to the challenge of it’s budget constraints, which suggests that further fiscal adjustments will be required this year. This is despite Prime Minister Mariano Rajoy successfully reducing the country’s deficit target.

“The easier targets do not affect the country’s A3 government bond rating with negative outlook because Moody’s had already incorporated a likely deviation from original fiscal targets and a slower pace of fiscal consolidation into its analysis,” the statement said.

“While the revised fiscal target for 2012 is more realistic than the previous one, Moody’s believes that the Spanish government will still need to implement a substantial fiscal adjustment this year,”

The agency also suggested that “profound structural reforms” must be put in place in Spain’s autonomous regions to guarantee the country can meet it’s targets

Last Friday, Bank of Spain figures showed the country’s public debt had increased dramatically to 68.5% of GDP, the highest for 16 years, and 8.5 points over the 60% target agreed with the European Union.

However, a caveat must be added here as various opinions say that Spain’s debt-to-GDP ratio is massively understated because it does not include the debt’s of the autonomous regions, nor government guaranteed bank debts.

Economy contracted 0.3% in Q4

A shrinking economy

For the first time in two years the Spanish economy shrank in the fourth quarter of 2011, according to figures from the National Statistics Institute.

The GDP shrank by 0.3 percent in the fourth quarter of 2011, compared to the previous quarter, roughly in line with expectations and unchanged from previous estimates.

Many economists fear this is the the start of a prolonged slump as Madrid implements austerity measures to deflate a huge budget deficit. Others suggest the country is about to fall into recession once again.

This was the first contraction since the fourth quarter of 2009.

Year-on-year the economy grew by 0.3 percent in the fourth quarter which is in line with forecasts and compares to 0.8 percent in the third quarter.

RBS economist Nick Matthews is hopeful that some countries in the euro-zone will avoid another recession but thinks Spain may find it difficult to avoid.

“Given the need for fiscal consolidation in the country and the pressure that puts on domestic demand, it’s going to be very difficult for Spain to avoid recession,” he said.

Since Spain entered the euro-zone 12 years ago they have been steadily growing but much of the growth was due to the housing explosion fuelled by cheap loans and since the market crashed in 2007 the country has struggled to maintain momentum.

Exports were the only sector to show growth in Q4 although this is slowing because many of the countries trading partners are seeing their own economies stagnate.

Overall the economy grew by 0.7 percent in 2011 compared to a fall of 0.1 percent in 2010.

GDP registered a fourth quarter increase

INEThe Instituto Nacional de Estadística (National Statistics Institute) have released an advanced estimate of the quarterly national accounts.

The report shows that during the fourth quarter of 2011 GDP generated by the Spanish economy registered a real increase of 0.3%, compared with the same period of the previous year.

Although Q4 showed a decrease in domestic demand, this was partly compensated by the increase in foreign demand that grew as compared with the previous quarter.

The quarter-on-quarter GDP growth was -0.3%, as compared with 0.0% for the previous quarter.

By temporary aggregation of the four quarters, the real growth in GDP in the whole of the year 2011 was estimated at 0.7%.

Although this advanced estimate uses the same methodology as that employed in the compilation of the complete estimate, these figures are provided only as a guideline.

The INE will publish the complete tables and charts of the Spanish Quarterly National Accounts for the Fourth quarter of 2011, on 16 February.

You can download the INE report here: Advance Estimate of the Quarterly National Accounts.

Two more years of recession for Spain

The IMF say it's not over yet

On Tuesday the International Monetary Fund released it’s latest global projections and Spain isn’t looking too good.

The report says that Spain’s GDP is likely to shrink by 1.7% this year. It will also see a budget deficit equivalent to 6.8% of GDP, and 6.3% in 2013 – both figures slightly higher than the 5.1% and 4.4%, respectively, predicted in the Fund’s September forecast.

A “mild recession” is forecast amongst the 17 members of the euro-zone as a whole with GDP contracting by 0.5%. The IMF did, however, praise the “substantial” spending cuts and tax reforms adopted by Spain’s new government in an effort to reduce the deficit.

The IMF’s chief economist, Olivier Blanchard, said on Tuesday that “the world could be plunged into another recession”, if the crisis in Europe continues to intensify.

He further urged European leaders to meet the sovereign debt problem head-on through new monetary policy, the creation and strengthening of “firewalls,” and bank recapitalisation.

In response to the report Spain’s new conservative prime minister, Mariano Rajoy, said “Spain will respect the deficit target. Today that is 4.4%, and Spain will respect that target,”

Spain may respect the target but meeting it will be another story.