Thursday, August 26, 2010

Chart Of The Day: How Spain's Stimulus Money Helps Germany Achieve Record Growth

Well, here's a nice way of putting things. Spain did less badly than expected in Q2 2010 as compared with a year ago, since in Q2 2009 it actually did worse than it initially appeard (following a downward revision in the data). Well, that's one way to improve, push the past backwards.

On a more serious note, the detailed data on the second quarter are now available for Spain, and interesting reading they make. Basically, what little improvement Spain did manage to achieve (0.2 q-o-q, -0.1% y-o-y) came from domestic demand and not exports, while the external trade balance deteriorated. Exactly the opposite to what you want to happen.

As the statistics office (INE) say: "On analysing the two large components of Spanish GDP from the perspective of expenditure, a similar pattern of performance could be observed as in the previous quarter. Thus, on the one hand, the negative contribution of domestic demand to GDP decreased two points and three tenths in this quarter, from –2.8 to –0.5 points. Whereas, in contrast, foreign demand decreased its positive contribution to the aggregate growth one point and one tenth, from 1.5 to 0.4 points".

In other words, all that deficit spending money is simply getting wasted, and there is no competitiveness correction taking place. In the midst of a huge potential export boom, Spain's economy is growing thanks to domestic demand, as the trade deficit once more deteriorates.

So one very simple way of putting this, so everyone can understand, is that the Spanish government is running a double digit deficit, and one part of the money spent is going straight out in additional imports which (among other places) come from Germany. That is, Spain is getting itself even more into debt to lend a kindly helping hand to the German economy. In theory, the exact opposite was to happen, and the German expansion was supposed to help Spain's net exports. But Spanish industry isn't, well you know..

And just to remind us, here are the respective industrial output charts I published in this post.

So when are people at the EU Commission and the IMF going to finally wake up to reality? This isn't going to work like this, and Spain needs to adopt concrete measures to restore competitiveness, and not find ever more ingenious ways to kick the can even further down the road. Either that, or we will all live to regret our own inaction one of these fine days.

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