What has gone wrong for the economy of Spain?

by Shaun Richards

Back on the second of September I wrote about my fears for the economy of Spain as shown below.

We seem to be seeing a swing lower in growth with a rise in inflation.

This rather contrasted me with the likes of ING who looked to be using the PMI business survey to suggest things were up,up and away.

All in all, the Spanish economy is on its way to record another strong growth figure in the third quarter. We currently estimate it at 3% quarter on quarter. For 2021 as a whole we expect the economy to grow by 6.5% and in 2022 by 5.5%.

Indeed on the 21st of this month the Bank of Spain joined that particular party.

MADRID, Sept 21 (Reuters) – Spain’s economy grew at a similar pace in the third quarter than in the previous one thanks to a solid domestic demand and looser COVID-19 restrictions, the Bank of Spain said on Tuesday, raising its forecasts for 2021 and the next two years…….In the third quarter, it expects Spanish gross domestic product to grow 2.7% after rising 2.8% in the April to June period.

A marginal rise for the year but a rise none the less.

After a record 10.8% slump last year, the central bank expects gross domestic product to expand 6.3% in 2021, up from a 6.2% forecast in June.

Soon Spain will be right back where it started from.

The central bank forecasts came just after Economy Minister Nadia Calvino said that GDP was likely to recover to pre-pandemic levels by the end of this year, as she maintained previous growth forecasts for this year and the next.

It seems that neither bothered to speak to the statistical agency which was on a Dune style road where the future can be known and it is the past that is uncertain, well the latter bit anyway.

Spanish GDP registered a variation of 1.1% in the second quarter of 2021 with respect to the previous quarter in volume terms. This rate is 1.7 points higher than that recorded in the first quarter and 1.7 lower than that advanced in 30th July.

So 1.1% is the new 2.8% and let me say credit to the statistical office which must have come under pressure not to do this. But the latest three quarters now go 0.2%, -0.6% and 1.1% which is a very different pattern to the surges predicted officially and elsewhere. Indeed the annual numbers were some 2.3% lower as for example the first quarter was revised some 0.2% lower as well.

The driving forces were lower private consumption and lower sales for businesses.

For those of you looking for an overall yardstick.

The Gross Domestic Product (GDP) at current prices stood at 1,121,948 million euros in 2020.

Retail Sales

These added to the gloom yesterday.

The monthly variation of the seasonally and calendar adjusted general Retail Trade Index (RTI) at constant prices between the months of August and July, stood at −0.2%. This rate was two tenths lower than the previous month.

So no growth in July and a fall in August. Indeed since April the numbers have been weak as its monthly fall of -0.5% has been followed by only one month of growth and that was the minimum of 0.1%. Thus the annual figure is now -0.9% and if we look back the adjusted index is 104.1 where 2015 is the base of 100. So the Euro Boom in that period has faded away now which is a shame as Spain did well back then.

Looking Ahead

There are issues here although this morning’s Markit manufacturing PMI misses them.

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Spain’s manufacturing sector continues to expand
strongly, registering another month of historically
marked gains in output and new orders as demand
strength in domestic and international markets is

The problem with that comes from them telling us that we have had 8 months of strong growth whereas if we look at the official series.

After adjusting for seasonal and calendar effects, the monthly variation of the Industrial Production Index (IPI) between June and July stood at -1.1%. This rate is the same as that observed in June.

Maybe they are missing this.

Spain is the second largest car manufacturer in the European Union after Germany. ( Reuters)

They go on to tell us.

Car sales fell 32% to 851,000 in 2020 and ANFAC Chairman Jose Vicente de los Mozos told reporters ahead of Barcelona’s auto show that he only expected sales to be about 900,000 this year, still some 25% below pre-pandemic levels.

euroweeklynews has been on the case.

Around 1,414,240 units have been manufactured so far this year in Spain, an increase of 11 per cent on 2020, when the pandemic was at its height, but a figure that is 25.3 per cent less compared to 2019, simply because without the chips, the vehicles can not be completed when they reach the end of the assembly lines.

The 2020 figures, of course, include the two and a half months during which the factories were on standstill, but this worldwide shortage of microchips has led to Spanish factories having to paralyse production lines, and make adjustments in shifts, depending on the supply of microchips.

Here is valenciaplaza.com

09/30/2021 – 

VALENCIA. (EFE) Ford has raised another temporary employment regulation file (ERTE) at the Almussafes plant (Valencia) due to the lack of semiconductors to continue producing vehicles, and this Friday it will present its proposal with the intention of applying it from the next week.

Inflation Inflation Inflation

This is another part of the present story as this emerged yesterday.

In September, the estimated annual variation rate of the IPCA stood at 4.0%, seven tenths more than the one registered in the previous month. For its part, the estimated monthly variation of the HICP is 1.1%.

So hits on two fronts as the annual rate reaches double the ECB inflation target and in psychological terms gets a new big figure. Also the monthly rise is 1.1% and I guess no-one is going to be falling off their chairs as they read the cause.

In this behaviour, the increase in electricity prices stands out, higher this month than in September of last year.

What happens next? Well this gives us a clue and on its way pulls the rug from under the Markit PMI report.

The government is intervening via price caps and transfers from energy companies. But with their being disputes between Algeria, Morocco and the EU right now then this is the state of play.

How dependant on Spain on Algerian gas? It’s hardly a new question, but more acute than ever. ( @weayl )


As you can see the official forecasts are now in the economics version of Comical Ali. There are consequences of this.

(Reuters) – Spain’s public debt rose to the equivalent of 122.8% of gross domestic product (GDP) in the second quarter of 2021, the Bank of Spain said on Thursday, as a result of the increase in spending due to the coronavirus pandemic.

That raises a wry smile as back in the day the EU established 120% as a threshold in the Greek crisis. Oh how they must wish they could redact that. These days the bond costs argument is much weaker because of the interventions of the ECB meaning that the ten-year yield is a mere 0.42%. But those interventions to raise inflation have left Spain more vulnerable in that regard. Monetary policy can do little explicitly about gas prices but by pushing as hard as they could for more inflation they have left Spanish workers and consumers more vulnerable. Now their “expansionary” monetary policy is contractionary because of that although I may be alone in pointing that out.

Still there is some good news. If you do not need food, lights or heating then there is very little inflation.

For its part, the estimated annual variation rate of underlying inflation (general index excluding
non-processed food and energy products) increases three tenths to 1.0%, which is three points
below to that of the general CPI. This is the highest difference between the two rates since the
beginning of the series in August 1986.


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