It was only yesterday that Prime Minister Rajoy stood up in the Spanish Parliament and told them that her fiscal or budget deficit would be 6.7% of her Gross Domestic Product or GDP. Only a week before he had told them it would be 7% so it was taken as good news. Unfortunately they seem to have forgotten that the latest target set for this number by the European Commission was 6.3% or that until recently Prime Minister Rajoy’s government had been promising it would be 6%. And lest we forget the original target for 2012 was in fact 4.3% of GDP!
Unfortunately these numbers are an example of reality was once a friend of mine as they exclude the costs of the bailout of Spain’s banks which add another 3.2% of GDP to the numbers. So 6.7% becomes 9.9% as we add it back in. Also we know that last year the fiscal deficit was originally announced at 8.5% of GDP but as time went by (and perhaps there were hopes that no-one was looking) it rose to 9.4%. If you look at how much debt Spain issued in 2012 and then compare it to the claimed fiscal deficit you might well have fears that such events are likely to recur for the 2012 numbers too.
Anyway apparently all these shenanigans will do this.
There is no doubt this increases confidence in Spain
What about economic growth in Spain?
Prime Minister Rajoy also told us this.
The most important of Spain’s goals are economic growth and creating jobs
An excellent idea so how is this going?
The past just got worse
This morning the Spanish statistics institute has told us this.
The Spanish economy registered a quarterly change in volume of -0.8%……..The annual GDP growth in the fourth quarter of 2012 is -1.9%
So both have been revised down by 0.1% as the last quarter of 2012 now looks even weaker than before. Overall in 2012 Spain is now estimated to have had an economic output of 1.051 billion Euros. We also see how the jobs issue went in 2012.
The use of the economy down to a rate of 4.7%, one tenth more than in the third quarter, representing a net reduction of approximately 805 000 jobs working full time in a year. For its part, the hours actually worked decrease at a rate of 3.9%.
The Bank of Spain looks forwards
In a section curiously omitted from the English version we are told this via Google Translate.
Limited information relating to the first quarter of 2013 points, in general, to contractionary tone prolongation of the activity, in a context of marked weakness domestic demand….The latest information on investment in capital goods points to a continuation the weakness of this component of demand at the beginning of the year.
This backs up the business surveys which have so far signalled a weak start to 2013 for Spain. as whilst 46.5 on the composite Markit index was better it was still well shy of the unchanged benchmark of 50.
What about Spain’s banks?
We have got used to continual falls in this series and the latest numbers carry on with the trend.
In the case of mortgages constituted for dwellings, the average amount was 101,460 euros, 3.0% less than December 2011 and 3.6% lower than November 2012.
The value of the mortgages constituted on urban properties was almost 2,888 million euros in December, indicating an annual decrease of 27.3%, as compared to the same month of 2011. In dwellings, the capital loaned exceeded 1,783 million euros, 29.9% less
So we see that our price measure or mortgage value is falling as well as our quantity measure or mortgage volume.
Mortgage Rates continue their rise
Regular readers may recall that. I discussed on the release of the last set of such figures a RISE in mortgage interest rates which is the reverse of a supposed low interest rate era. Well it is continuing.
The average interest rate for the total of mortgage loans was 4.43%, 1.8% higher than December 2011. Regarding dwellings, the average interest rate was 4.45%, 4.7% higher than December 2011.
What about other measures?
There was some cheer when it was announced that bad loans at Spanish banks had fallen from 11.4% to 10.4% in December although such cheer was unlikely to be from Spanish and indeed Euro area taxpayers. You see the other bad debts had been transferred to the vehicle called SAREB created by the Spanish government and backed by loans from the European Stability Mechanism. So in fact we saw privatisation of profits and socialisation of losses one more time as Spanish and Euro area taxpayers found an explicit liability on their books as opposed to an implicit one.
Yesterday we saw that the recently improving trend for Spanish deposits has ended. The “Bin Lardens” (500 Euro notes) which had flowed into the system via a tax amnesty seem to have stopped flowing as deposits fell by 0.5% in January. If we look back for perspective they seem to be on their way to 2007 like numbers.
The problem that is Bankia
This is the totem pole for the problems with Spanish banking as it is all there. We saw lending to the housing sector followed by mergers (7) which were designed to hide the truth badged as strengthening followed by denials and then collapse. Here is the latest from Bloomberg.
BFA-Bankia whose collapse last May helped push Spain into a European banking bailout, posted a record after-tax loss of 21.2 billion euros ($27.6 billion) as it cleansed soured assets from its balance sheet.
The already embattled Bankia share price has fallen another 4% this morning to 29 Euro cents which means that the private investors who were missold its debt instruments as “safe and secure” are even further away from any sort of return on what has become a national scandal.
It was only last May that Spanish Finance Minister Luis de Guindos told us this.
Bankia is solvent, the state is fully behind it
Er actually the Euro area is behind it now too. But there was more.
[The bailout] will not cost anything to the taxpayers…………the minister said that the state will actually make a profit
Echoes of Anglo-Irish Bank and indeed Royal Bank of Scotland is there not?
In the end Spain will have to admit that the problems in her banking system are worse than she has owned up to so far and the size of the bailout is something I expect to inexorably rise. Meanwhile Bankia will cut 6000 jobs which unless I am very mistaken means that Prime Minister Rajoy’s job creation programme is starting at -6000.
An economic oddity
With apologies to David Bowie for partly pinching one of his most famous song titles there is something odd about this.
According to the flash estimate issued by the INE, the annual inflation of the CPI in February 2013 was expected to be 2.7%. >
Such economic collapse would not in pre credit crunch times be expected to have been combined with inflation at all let alone such levels. Of course rises in indirect taxes are playing their part here.
But in an example of oh what a tangled web we weave I noted this in the annual accounts today.
Unit labor costs recorded an annual rate of -5.8%
So a broad hint of falling wages whilst inflation is continuing which sets a trend for real wages. Whilst this may well help exports (although a strong Euro may well have neutered it as we stand) if we project the impact of this on domestic demand the result is not pretty. Let us hope for Spain’s sake that there are some productivity gains in there although falling investment poses a question there too.
Earlier this month I was interviewed by the Spanish newspaper SUR and a link to the interview is below.
In it I suggested that austerity in Spain’s circumstances is a type of economic self-harming and since then we have seen more evidence of this. I am afraid to have to tell you that none of the possible sources of good news for the Spanish economy I discussed have taken place but some of the bad ones have.
The news wires are reporting that a Spanish official has just stated that the 2012 fiscal deficit was 9.99% thus directly contradicting the Prime Minister only 24 hours later (h/t Darlington Dick).
Meanwhile RBS in the UK is at a similar game.
Operating profit of £3,462 million, the largest operating profit since the turnaround began – up 90% from 2011 and £11.7 billion higher than when we made a loss in 2008.
Emerges from its chrysalis and somehow becomes this.
Overall loss before tax was £5,165 million
I am glad that is clear aren’t you?