February 17, 2018 - Latest: In the wake of Carillion – how can investors avoid a ‘value trap’ and which fund managers do it best by Darius McDermott
12th March 2012
Very important stuff here. Is there any visibility on the economy’s productivity which can be read alongside GDP.
Recorded productivity for the Spanish economy has been positive although there were downgrades to the back data. 2009 went from 2.9% to 2.7%,2010 from 2.6% to 2.3% and 2011 from 2.8% to 2.2%. So progress albeit of a just reduced type. For this year so far then the latest update is shown below.
“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 increased four tenths, from 3.1% to 3.5%, whereas the growth of the
apparent productivity per hour actually worked decreased by half a point, from 3.0% to 2.5%.”
The factors underlying this may be the falls in employment and rise in unemployment.
Shaun – would you please explain to a layman how, given all the above data, Spain borrowed €3.6 billion this morning at rates “significantly” lower than in the near past. Is there something the market knows that we don’t?
This goes back to the promises of action by ECB President Mario Draghi back at the end of July. The hyperbole has continued through August and to be fair has led to a genuine reduction in yields at the short end with the 2 year falling to 3.67%. So 3 and 6 month paper was easy to sell at low yields today.
The catch? Well that comes at the next ECB meeting on September 6th when actual action will be required which will not be easy as the German Constitutional Court will still be deliberating.
On the other side of the coin Catalonia has asked for a further 5 billion Euros of funding tonight.
Surely Greece shows Spain what happens with Euro area austerity?
Rumours of UK land purchases by Euro based buyers – attempts to acquire non Euro assets perhaps as currency hedge? – BAA purchase, utilites etc by European neighbours part of this strategy?
You would think so. As to some of the UK purchases by Euro area buyers I think that a major factor was the fall in the £ versus the Euro whihc made some of the assets look cheap in Euros.
You’re right if you consider GDP as the measure of the success of an economy to be a fundamental flaw of academic economics.
To see this you have to consider the UK, for example, as a single business, UKplc. GDP, more or less, represents the turnover of UKplc. Now, as a previous operator of businesses, I know full well that turnover is not necessarily proportional to profit.
And, however anyone may condemn profit, a business won’t survive for long without making one. For UKplc, profit is best measured by Balance of Payments. In respect of this, UKplc is a very, very sick business; it has, as I’m sure you are aware, been in a loss situation for three decades!
Balance of Payments is the key criteria for the success, or otherwise, of an economy.
Totally agree Critic.
I can’t understand why the UK trade deficit doesn’t get more attention. Even with our massive banking/insurance/legal service exports, we don’t come close to paying for our goods imports. Services (even with the City boom) can’t pay for our lifestyles – thats the myth of the service economy – only works for Liechtenstein.
The trade deficit should have been a big drag on GDP over the last decade or so but it seems to have been offset by “Investment ” i.e. borrowing from abroad, The “investment” is meant to produce future capital growth but as far as I can see its been primarily sunk into UK real estate. I don’t see how that generates capital growth like building factories would but I am happy to be corrected by the economists out there.
With North Sea production dropping at 10% year and the City of London under siege from US and Europe then we best hope for a big drop in domestic demand to reduce imports and help GDP !
Fully agree with you on this point. Whatever happened to “economic diplomacy” or was it just another “good idea”?
why the UK trade deficit doesn’t get more attention?
dunno DaveS perhaps its because its a predicament and not a problem politicos can solve!
oil decline at 10% is just scary but its going to get worse with all those horizontal wells….
chip in the declines in gas and we’re competing with the ROW for whats left to export . Its not as if the price is getting cheaper either.
IMHO the cost of the imports is going to cripple us and all Camerons mob want to do is build more runways!!
Energy infrastructure is left to the Germans and French to build for us….. how can we afford all of this mystifys me…
Hi Critic Al
There has been an extraordinary change in the way that balance of payments numbers are regarded in the UK and elsewhere. I can recall when it was “all hands on deck” as we awaited the 9:30 am UK update and the 1:30pm (mostly) US one. Now whilst this was unwise as their accuracy on a monthly basis is poor it is also unwise to switch to a situation where very few people seem to care at all! From one extreme to another…..
In spite of the 2007/08 depreciation and Mervyn King’s subsequent talk of rebalancing we seem to have returned to sustained deficits and of course North Sea Oil production is in decline.
Our trade deficit has run up an astounding debt of over £1 Trillion during the last 20 years – Oh wait a minute, that’s the same figure as our National Debt!!
Further consideration of the single business analog tells us that the management of UKplc not only have run up enormous debt but have staved off further debt via asset stripping (aka selling off the ‘family siver’ at knock-down prices) and now via robbing their employees (current and retired) of their cash!
And they think the Spanish economy is bad!
If GDP is a poor model, can you suggest a better model for judging a country’s economic performance ?
I think that a lot of the trouble comes from the uses to which GDP numbers are put. Using them as quarterly measures of how economies are doing relatively is fraught with danger. More education on the subject would help I think.
As to a better model we are left with taking a judgement from overall economic statistics which in the modern era has seen a promotion for such measures as Purchasing Managers Indices from division one (great isn’t it that division one is the third division now…) to the Championship and if they continue to be a timely and fairly reliable guide perhaps onwards to the Premiership. As some come up others go down and monthly trade figures and durable goods are unreliable and we should look for a longer time period.
Off topic with fuel prices, but I recently drove across Europe, with the following costs. UK diesel GBP 140.9 and 149.9 (M11 services). France 1.42 EUR (supermarket pump), Belgium 1.57, Luxembourg 1.32, Germany 1.57, Austria 1.43 (off Autobahn)
But the surprise was the Romanians did not accept euros and the Hungarians asked 26 euro for 12 liters diesel & a bottle of water. – Visa card proved very useful.
In previous years they gladly took euro and gave a competitive exchange rate. The euro’s desirability is dropping fast !
A friend has just got back from holiday in Spain. His dad lives just the other side of the border from Gibraltar.
During his stay, he had cause to walk into a pharmacy. To his surprise, he found nothing on the shelves and everything on hooks had security tags which had to be unlocked before you could buy them.
Given this ridiculous level of security, he asked the proprietor why.
He told my friend that if they didn’t do so, their stock would just be stolen, as had happened after the crisis started to bite.
Desperate times in Southern Spain.
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