It looks increasingly that further economic decline in Spain is set to be a major economic theme in 2013. It was only last Wednesday that I discussed the rise in her unemployment rate to 26.02% meaning that 5,965,400 people were unemployed there at the end of 2012. I pointed out that it is in my opinion even more of a signal that her total level of employment had fallen by 363,300 in the last quarter of 2012 alone as employment levels have proved to be a prescient guide to future developments in the credit crunch era. Unfortunately since then there has been more bad news.
The Spanish statistics office has told us this today about December.
The General Retail Trade Index at constant prices stands at –10.2%, as compared with –7.8% in November
As this comprises the crucial Christmas season we can see that there was no seasonal cheer or pick-up for Spanish retailers this time around. In fact if you look at the numbers for the year overall we in fact see that there was a further decline.
In 2012, sales in the Retail Trade Sector dropped 6.8%, as compared with 2011
We get an additional guide to this below.
The variation of the General Retail Trade Index between December and November was 22.1%. This rate showed the lowest increase in the last five years.
The statistics agency probably now regrets also using a calendar or working day adjusted series as this shows an even worse decline in December as it is 10.7% below the year before.
Another worrying sign is that even food sales have turned solisly downwards as the annual fall in those in December was 5.1%.
Some perspective on this
The graph shown in the release takes us back to the beginning of 2011 and every month shows a fall some of them heavy. In fact retail sales in Spain have fallen for 30 months in a row now. If we look at the underlying index we at first get a little relief as being at 89.8 where 2005=100 it looks weak but better than some. But this is to forget that December is the major month for retail sales.
If we look at past Decembers they have gone as follows
100 (2011): 106.9 (2010); 112 (2009); 113.3 (2008); 122.5 (2007): 125.1 (2006)
So we see that retail sales in Spain were this December some 28% lower than the peak for this series in 2006. One area at least in Spanish economic life is seeing plenty of austerity!
How is the Spanish mortgage market doing?
This is a central theme as the boom and bust of her housing market has affected Spain’s economy deeply. It is a major factor in her accepting Euro area aid for her banks for example as her banking sector has been deeply wounded by it. Let us look at the trends.
The value of the mortgages constituted on urban properties was 3,360 million euros, indicating an annual decrease of 34.5%. In dwellings, the capital loaned exceeded 2,011 million euros, 34.3% less.
As you can see this remains a market in distress and we need to recall that these falls are on the back of previous declines so that this has been something of a collapse.
Something you may not have expected
If you look at mortgage interest rates we see this.
Regarding dwellings, the average interest rate was 4.39%, 0.2% higher than November 2011.
This did surprise me a bit too. After all 2012 was a great claimed success for the European Central Bank with its one trillion plus LTRO (Long Term Repayment Operation) leading to easier liquidity for Euro area banks. Also within this one year timescale it had cut its main interest rate three times on November 9th and December 14th 2011 and July 12th 2012. Yet in spite of all that liquidity and a main interest-rate cut from 1.5% to 0.75% we see that mortgage rates in Spain are higher than a year ago.
To be specific mortgage rates did fall until September but they then bottomed at 4.12% and then went 4.33% and now 4.39%. I will be interested in readers thoughts on this as to what has happened here. But Spanish mortgage holders do not seem to have got any sustained bang at all from the ECB’s (trillion Euro) bucks.
If we look at the structure of Spanish mortgages we see that interest rate moves do matter.
92.4% of the mortgages constituted in November used a variable interest rate, as opposed to the 7.6% that used a fixed rate.
Ah but haven’t deposits at Spanish banks risen?
Yes in December 2012 they did by 0.5% over November 2012. The catch is that this was a slower rate than in 2011 and if we compare December 2011′s 1580.62 billion with December 2012′s 1464.27 we see that there has been a fall of over 7%.
Meanwhile the Euro exchange rate rises
Spain is being squeezed by the rise and rise of the Euro in recent times as it is one of the few strong currencies around in the West right now. On the flip side of this is the way it has helped to drive weakness in the UK pound which dropped into the 1.16s versus the Euro yesterday. However if we concentrate on the implications of this inside the Euro area we see that the rally began at the end of last summer. Since the the ECB’s effective or trade weighted index has risen from a low of 94.41 in late July to 101.96 yesterday or 8%. Much of the move has taken place since early November.
So the Spanish economy which was making progress in its efforts to improve its price competitiveness is increasingly finding that the Euro rally is moving the goalposts.
As ever there is plenty of rhetoric
Today we are seeing the rhetoric contradict itself. The head of Germany’s Christian Democrats Herr Fuchs has been reported on the ways as saying that Spain is doing a very good job with its economic overhaul. As we muse on what he might mean by a good job we note the European Commissioner Olli Rehn has said this.
If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path
So it looks as though “good job” needs to go into my financial lexicon and we may see yet another relaxation of Spain’s fiscal deficit targets. The problem is that rather than getting ahead of events these in fact follow them and only reflect what has already happened.
Tomorrow we will get the official number for how much Spain’s economy contracted in the last quarter of 2012. We know that the Bank of Spain has already made it guess.
The indicators available suggest this pattern will have intensified in Q4, and a decline in the quarter-on-quarter growth rate of GDP of 0.6% is estimated, entailing a reduction of 1.7% in its year-on-year rate
The danger after today’s retail sales release is for the number to be weaker than that. As ever care is needed as the release of a spot number hides more than a fair bit of uncertainty in a preliminary or first release. For example back on December 28th I reported this.
As a result of this update, the real growth of GDP national in 2011 was revised down three tenths (from 0.7% to 0.4%).
As an aside this is another kick in the teeth for conventional economic theory which predicts upwards revisions in such periods. But I am reminded of my prediction then which the subsequent numbers are increasingly backing up.
So far the official numbers have not fully encapsulated this but perhaps todays downwards revision for 2011 will be followed by others for 2012
I ended my update on Spain last week by saying that I feared for her lost generation and today I fear even more.
Update 30th of January
As I feared the Spanish GDP numbers did turn out to be worse than expected. Below are the official numbers.
Gross Domestic Product registers a quarterly variation of 0.7% in the fourth quarter of 2012
The annual rate is -1.8% in the fourth quarter of 2012