Wednesday, May 14, 2008

Spain GDP Q1 2008 Preliminary

According to the quarterly GDP advance estimate issued today by the INE, during the first quarter of 2008, Spanish Gross Domestic Product registered a real growth rate of 2.7%, as compared with Q1 2007. Thus the slow down continued, following a trend which seems to have started in the first quarter of 2007. According to the statistics office the reduce figure was the result of a substrantial slow-down in national demand, which was partially ofset by a less-negative contribution from foreign trade. Put another way, the slowdown in imports which resulted from the reduction in internal demand meant that external trade was less of a drag on domestic GDP growth, of course the other side of the coin is that the impact of this will be felt (for example) in Germany.

Moreover, the quarter-on-quarter GDP growth rate was 0.3%, five tenths less than the 0.8% achieved in the previous quarter.

As can be seen from the quarterly growth chart the Spainsh economy most probably peaked in the last quarter of 2006. The economy then slowed gradually for three quarters, and then we hit the financial turmoil of August 2007, and the probles in selling cedulas, after which point the Spanish economy simply went into "nose dive" if present trends continue (and there is no reason whatsoever for thinking they won't) then I think we have a 50% possibility of q-o-q negative growth in Q2, and a virtual certainty of negative q-o-q in Q3. In other words the Spanish economy is at best two quarters, and at worst one quarter away from outright recession at this point.

Which means we can expect a maximum growth of less the 1% for GDP in full year 2008, and probably much less, with the emphasis on much.

On 21 May the INE will publish the complete tables and charts of the Quarterly Spanish National Accounts for the first quarter of 2008.

Update 15 May 2008

The Financial Times have an article this morning from Leslie Crawford (Madrid) and Frank Atkins (Frankfurt) on the Spanish slowdown. They have most of the picture, although they probably still underestimate the depth of the present problem. Also they say this about Germany:

Nevertheless, Spaniards can draw comfort from the fact that growth in northern Europe is proving to be more resilient. Stronger-than-expected growth in Germany and France is good news for Spanish exporters, who rely heavily on northern Europe for orders.

The sharp slowdown in Spain contrasts with the much more upbeat data expected today from Germany. GDP in Europe’s largest economy grew at a significantly faster pace in the first quarter than the 0.3 per cent growth seen in the final three months of last year, according to analysts’ estimates.

I think this, while all being true is rather misleading, since Germany is now evidently itself slowing (and part of the explanation is probably the reduction in exports to Spain and Italy), so if we look forward to the second or third quarter it seems pretty clear that Germany will itself be having a slowdown (a slowdown, not a housing crash), and while this will likely be more moderate than Spain, it won't be a plus for Spain as the authors suggest. Latin America is a much more likely potential plus, but this is probably rather in the longer term.

Otherwise, as I say, the FT more or less have a fair summary of the game so far:

The brusque slowdown appears to have caught the recently re-elected Socialist government by surprise – even though Spain’s biggest business lobby, the Círculo de Empresarios, warned last month about the risks of stagflation, a period of little or no growth with high inflation.

Pedro Solbes, finance minister, recently lowered the official growth estimate for 2008 from 3.1 per cent to 2.3 per cent – but on the basis of the economy’s recent performance, the new forecast looks optimistic.

Mr Solbes, in Brussels yesterday for a meeting of European finance ministers, would only confirm that the economy was “decelerating rapidly”.

Economists worry about the impact of the slowdown on employment and on government revenues. Spain has a fiscal surplus of about €20bn – two per cent of GDP- which Mr Solbes says he will spend to keep the economy afloat. Revenue collection in the first months of the year, however, have been below expectations.

Between 2004 and 2006, Spain created one-third of all the new jobs in the EU, many of which were filled by Spain’s 4.5m immigrants – 10 per cent of the total population.

Unemployment is now rising as the labour-intensive construction and services industries shed tens of thousands of jobs. Last month, unemployment topped 2.3m – 15 per cent higher than a year ago. Job creation in Spain stops when growth dips below 2 per cent a year, economists say.

The slowdown is hitting immigrant workers particularly hard, and Celestino Carbacho, the new labour and immigration minister, is understood to be considering voluntary repatriation schemes for unemployed foreigners who wish to draw Spanish unemployment benefit in their home countries. The Spanish government says it would also support the returnees with small loans to start up businesses. However, similar schemes have attracted only a handful of volunteers in the past.

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