Storm Clouds Continue To Darken Over Spain

August is going to be a long month for Spain. All those people lying on the beaches reading such depressing news day after day. We have three more gloomy inputs since last Friday.

Dire Manufacturing PMI in Spain in July

Spain's manufacturing economy shrank in July at the fastest rate ever seen in any European Union survey of the sector conducted by Markit, the research organisation said on Friday. The Purchasing Managers Index for Spain slipped to its lowest level since the survey began in February 1998, Markit said. The Markit Research Manufacturing PMI index contracted for the eighth consecutive month to 39.2, down from 40.6 in June. Any PMI figure below 50.0 shows contraction while figures over 50.0 show growth.




Eurostat figures show that May unemployment in Spain was the highest in the 27-member bloc after Slovakia, and the government said it expected it to rise to 12.5 percent by the end of 2009. The Markit figures indicate a continued rise in unemployment to the end of the year, with the index's employment rating falling to 38.8 from 39.3. Staffing levels contracted for the 11th month running and the rate of decline has accelerated in each month so far in 2008, the survey showed


Spain's Consumer Confidence Hits Another Historic Low In July


Spanish consumer confidence fell to a new historic low of 46.3 in July from the previous record low of 51.7 hit in June, according to the Official Credit Institute (ICO) this morning. A reading of less than 100 indicates pessimism about the economy exceeds optimism. The index started in September 2004.

The index has only risen in one month (February, just before the elections) in the last 15.




All the sub components were also down.


To help us understand how all this works, and what such a reading might imply, PNB Paribas have kindly prepared a nice chart which overlays consumer confidence (with a 3 month lag) over consumer spending. If this chart continues to give a reasonable representation, then we may expect consumer spending in October to be dropping in much the same way as consumer confidence has just fallen in July.



Spanish consumers may find yet another reason to get pessimistic in a survey of European housing published by ratings agency Standard and Poor's last Wednesday. According to S&P's estimates UK house prices are set to fall by a quarter in total but could find a floor next spring, unlike in Spain, which is set for a longer housing correction.

S&P said the average cost of a house would revert to about 4.4 times average annual earnings - near back to where it was in 2000 - if prices fell by 25 percent overall. S&P said such a drop implied another 17 percent fall for UK house prices, with a trough occurring in April or May 2009, given the market's current rate of decline. The market is down by almost 10 percent since August 2007.

Spain was also likely to see 25 percent peak-to-trough drop in house prices, according to S&P's, but a cocktail of higher interest rates, excess housing supply, and a darker economic climate meant it would take longer to get there, S&P's said.

Standard & Poor’s, also estimated that there are 1 million homes currently looking for a buyer, 500,000 of them newly built. One developer’s association recently forecast as many as 750,000 newly built homes on the market by the end of 2008.

Spain's Unemployment Rises Again In July


Registered unemployment in Spain, where construction firms added more than a million jobs this decade, increased for the fourth consecutive month in July. Unemplployment has only fallen now in one month (February, just before the elections) in the last eleven. The number of people claiming unemployment benefits rose 1.5 percent, or 36,492, from the previous month to 2.43 million, according to the Spanish Labor Ministry. From a year earlier, the number of claimants increased by 23 percent, or 456,578.





Home sales and mortgage lending slumped by more than a third in the year to June. Jobless claims among construction workers grew 5.4 percent in July over June. Unemployment in service industries was up 0.8 percent on the month.



Caja Castilla-La Mancha Exposed To Failing Builders


OK, this is not big beer, since La Caja Castilla-La Mancha is not itself big beer, and the sums of money involved are pretty small, but it is indicative of what is to come.

The Spanish newspaper El Economista are reporting this morning - citing unnamed sources - that Spanish savings bank Caja Castilla-La Mancha has a 40 million euros ($62.3 million) loan with two property companies that are seeking to be put into administration. The companies, Masdevalia and One Properties, are owned by businessman Juan Antonia Roca and are involved in promoting two leisure complexes in Murcia, in southeast Spain.
For the unlisted savings bank, the outstanding loan represents almost double its EBITDA (earnings before interest, tax, depreciation and amortisation) reported in the first half of the year, the paper said. The property companies have asked to be put into administration because they are unable to meet a debt repayment of some 80 million euros in total, El Economista said.

The latest Spanish unemployment figures show a national rise of 23.17% in the number of unemployed, but in regions heavily dependent on residential construction, like Murcia (which is the community where unemployment has risen the fastest), the rise has been far more dramatic, with unemployment up 51.88%. And it is of course in Murcia that Masdevalia and One Properties have been building.

And just to cap it all today, we learn that Euribor (12 months) – the interest rate normally used to calculate mortgage payments in Spain – rose to 5.361% in June, the highest level since the Euro was introduced. Euribor has now risen for 5 consecutive months, and is now 18.2% higher than it was a year ago. Compared to June 2004, when it dropped to its historic low of 2.103%, Euribor is now 156% higher, which is to say it is more than one and a half times greater. The latest rise in Euribor will push up mortgage repayments on variable, annually-resetting mortgages taken out last year by close to 900 Euros per year.