What is happening with the national accounts and GDP of Spain?

Back on the 31st of July I pointed out that the Spanish economy was divided into two clear areas. The first is the external sector which is the good part and the second is domestic demand which has been the bad part for some time. Of course they interrelate too as weak domestic demand reduces imports which boosts the external balance. In the second quarter of 2013 the mixture had improved as the Spanish statistics institute had recorded an economic contraction of only 0.1% which was the best performance since the third quarter of 2011. Although this still meant that the year on year picture was weak.

The GDP annual variation in the second quarter 2013 was –1.7%

Revisions, Revisions

One of the issues with Gross Domestic Product numbers is that they are revised over time sometimes significantly. This does not fit well with the short attention span of modern media and so leads to an obvious temptation to publish relatively optimistic figures and then revise them later once the hue and cry of the pack has died down. This does appear to be happening more than you might expect in the credit crunch era as over time recessions used to be revised upwards and by that I mean to a level less severe than was thought at the time. However yesterday the Spain statistics institute released this.

The Spanish economy registers real growth of –1.6% in the year 2012

This may not seem out of line so let me add this.

As a result of the update, the growth of Gross Domestic Product (GDP) for the year 2012 was revised with a drop of two tenths and for the year 2011, it was corrected with a reduction of three tenths.

So the output of the Spanish economy is suddenly being measured in GDP terms at around 0.5% smaller than it was ! So since the end of 2008 the Spanish economy has shrunk by 5.5% rather than the previous 5% and 2011 has edged close to no longer being a year of recovery as growth has shrunk to a wafer-thin 0.1%.

What caused this?

The picture looks simple at first.

as a result of the lesser contribution of domestic demand (from –3.9 to –4.1 points) considering that the contribution of the foreign demand remained the same (2.5 points)

But this is slightly misleading if we think that the economic impact of foreign demand was exactly the same.

Thus, real growth of exports in 2012 was revised with a drop of one point (from 3.1% to 2.1%), whereas the drop in imports increased by seven tenths (from –5.0% to –5.7%)

As you can see not only was domestic demand weaker but so was export growth. For the purposes of these numbers the fall in imports offsets the fall in exports but this is one of the flaws of GDP statistics as Spain is in fact worse off.

This also poses a troubling question going forwards as recorded improvements in Spain’s economic circumstances in 2013 have relied on an improvement in net trade. If 2013 has been recorded in the same way as 2012 then there is the possibility of a later downwards revision.

Deeper and Deeper

As I looked further into the numbers I spotted this.

In nominal terms, the variation rate of the GDP for 2012 was downwardly revised by four tenths (from –1.3% to –1.7%)

Is 0.4% the new 0.2%?

The Implied Deflator: No inflation in Spain in the last four years?

This is the inflation measure in the national accounts and regular readers will be aware that I have been writing critiques of its use in the UK particularly recently in the area of government where there have been some extraordinary numbers. In 2012 in Spain it fills the gap above by being revised down to zero. But we get a new view on Spain by observing that it has been effectively zero since the end of 2008. I am slightly exaggerating as in fact it adds up to 0.17% but I hope that you get the point.

The revisions here have been large as the number was previously 1.58%! Now consider GDP numbers which are sometimes poured over for 0.1% and we see one more time that such behaviour is bizarre as they are by no means that accurate. Indeed 2011 seems to be a troubled year for Spain’s accounts as implied deflator inflation was 0.96% and is now 0.02% which is much more like 1% than 0.1%.

For comparison purposes the Spanish measure of consumer inflation rose by 9.3% over the same period.


So we find ourselves comparing stocks with flows. The flow universe is much more preferable for Spain as it shows a reduced fall whereas the revisions of the stock world mean that they are being recorded as poorer overall. Or one step forwards to go two backwards.

Also we are seeing revisions of considerable size which is a reminder of how inaccurate such numbers are. This is further reinforced by the new view on the behaviour of the implied deflator in Spain in 2011.

Tucked away in the numbers were downgrades to the level of employment in Spain too which in a country with an unemployment rate of 26.3% is extremely unwelcome.

Monetary Developments

One number which is regularly poured over is the size of the doubtful loans being carried by the Spanish banking sector. In June these rose from 170.2 billion Euros to 176.6 for an increase of 3.7%.  On the other side of the balance sheet data out today from the Bank of Spain shows deposits at Spanish banks falling to 1,491.7 billion Euros. Whilst a fall at this time of year is not a surprise the fact that the number is some 1% lower than last year is much more of a concern.

A wider data release covering the whole Euro area from the European Central Bank showed that it still has issues to deal with.

the annual growth rate of total credit granted to euro area residents was more negative at -0.5% in July 2013, from -0.3% in the previous month.

And in particular the amount of credit was falling faster in an important area.

The annual growth rate of loans to non-financial corporations was more negative at -3.7% in July, from -3.2% in the previous month.

So whilst the monetary policy of the ECB remains “accomodative” with narrow money (M1) growing at an annual rate of 7.1% and broad money (M3) growing at an annual rate of 2.2%, it is struggling to influence the supply of credit. It is also true that the rate of monetary growth is slowing making us wonder if the improvement in the Euro area economy will ebb too as 2013 moves into 2014.

Mortgages in Spain

This is an area where there are still considerable declines.

In the case of the number of mortgages constituted on dwellings, it stood at 14,053, 42.2% lower than that registered in June 2012. The average value of the mortgages was 97,495 euros, 9.0% less.

This is the worst performance in June so far in the post bubble era for Spain’s housing market. As we can see from the numbers below it represents a deterioration on the numbers for 2013 so far too.

The number of mortgages constituted on dwellings decreases 23.5% in the first six months, as compared with the same period of 2012.

Also the ECB might do well to note the point below.

The average interest rate for mortgages constituted on dwellings was 4.43%, 2.0% above that registered in June 2012.

A marginal increase but an increase all the same over a time period where the ECB official interest-rate fell from 1% to 0.5%.


As ever there is much to consider. There has been a recorded pick-up in Spain’s economy but as we can see her mortgage and housing sector still looks troubled. Against this is the fact that there is a trend these days towards cash deals which is actually true in many countries. Also we note the tendency to revise the past downwards which seems to be occurring somewhat regularly.

Meanwhile Spain has to battle with a Euro which is set much more for the German economy than for Spanish economic circumstances. Also like all oil importers Spain will feel both inflationary and deflationary effects if the oil price persists to climb as a barrel of Brent Crude Oil is at US $116 as I type this.

As a final note is it not symbolic of the times that not only is the transfer of Gareth Bale  to Real Madrid inflating into the stratosphere in terms of expected amount but also that nothing has actually happened yet?!







This entry was posted in Euro zone Crisis, GDP, General Economics, Inflation, Quantitative Easing and Extraordinary Monetary Measures, Recession and tagged , , , , . Bookmark the permalink.
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  • Andy Zarse

    Hi Shaun, nothing gets by you does it! :-)
    I know you have always taken the attitude that you should trust official figures because if you don’t then what do you have left? You clearly realise the trick is to look deep within the small print to see how they arrived at their answers. We were always taught at school to “show your workings”, I little realised at the time some adults would try to hide it!
    If I understand your general thrust, it’s not so much that the figures are factually incorrect, but more how the figures have been manipulated – and what they are intended to represent – that irks.
    Didn’t Al Martino sing a song in the Sixties called “Spanish Lies”?
    Andy Z

  • James

    Hi Shaun
    When you add up all the issues with GDP numbers, it does become obvious that the media obsession with tiny variations is simply absurd.
    The reality is that a better measure is probably a combination of unemployment, inflation (if you could stop politicians fiddling the figures) and government borrowing. These at least might give a sense of how things are for people and whether the position is sustainable.

    I still just don’t understand how a 26% unemployment rate doesn’t convince Spaniards that the euro isn’t necessarily a good thing

  • DaveS

    You can’t stop politicians and their hired economist lackeys from fiddling the numbers – the fiddling will indeed get much worse – look at Argentina as an example.

    Unemployment, GDP, national debt, inflation are the worst things to look at because they make it on to the BBC. Therefore they are fiddled heavily.

    Better to look at the trade balance, much less publicised – but then who knows what they do to fiddle that ?

  • Rods

    Hi Shaun,

    Another good blog.

    By reducing the implied deflator I assume this flatters their GDP figures, so the recession doesn’t look as deep as it really is?

    2014 should be interesting for the Spanish banks with new EU stress tests due. Once they lift the lid, will the ECB back pedal again, so we get another whitewash, like last time? From the upside figures for the property boom I suspect there is still another €100bn or more above the declared €170bn, that are bad loans.

    Using smoke and mirrors for the national accounts may seem clever to make things not look as bad, but surely all they are doing is deceiving themselves, the politicians and the populace as it doesn’t alter the underlying facts.

    Following on from yesterday and the professor with his Sovereign Wealth Fund. I thought this gem from the French professor of economics Bruno Moschetto at the University of Paris 1 and HEC as reported in Le Monde would provide you with some light entertainment where he puts forward his case on why France is not bankrupt. I couldn’t help but laugh, so try and keep a straight face while you read it. His opening paragraph is:

    “No: France is not bankrupt … The claim is in fact an economic and financial untruth. France is not and will not bankrupt as to enter in this case must be in a state of insolvency.”

    You can read the rest here:


    He goes on to argue that the Government can raise taxes at will to plug any holes.On this basis, nor are Greece or Portugal bankrupt then and why didn’t they just raise taxes to cover their shortfalls? Oh err, they did and collected less revenue! I don’t know what these professors are on but I want to steer well clear of it! 2014 may well be the year that France becomes a fully paid up member of the PIIGS club, but this is not reflected in their bond yields, where they are lower than the UK and the US.

  • Justathought

    Hi Rods,

    As I stated yesterday…Our youth must be instructed “educated” by those “recognized” (laughing stocks) people… This society which we are living into and have time to observe will never cease to surprise me!

  • forbin

    hi rods

    we have front seats at the show – theres nothing you can do

    witness the Syrian debarcle now being “planned”

    I’d get some popcorn in and settle in to watch

    its going to be a corker of a show !


  • forbin

    Hello Shaun

    so what its then – another bailout withing 6 months ?

    I don’t think I’ve seen or heard any solution to the Spainish banks effectively being bust…..

    just more can kicking

    so without dropping the Euro what can be done? what hope is there?

    and why do the Spainish people put up with it?


    road to nowhere – talking heads

  • Noo 2 Economics

    Hi Shaun

    “Whilst a fall at this time of year is not a surprise the fact that the
    number is some 1% lower than last year is much more of a concern.”

    Why? Couldn’t this just be people spending their savings and if this goes on for a short time and sparks the economy wouldn’t it be a good thing?

  • Anonymous

    Hi Andy

    Ah yes I had forgotten that song…

    As to the numbers it is the changes in the series that struck me as odd. If it was a football match the score would have gone from 1-0 to say 4-0 without a second or a third goal being reported. This is what happened in 2011 in Spain to the implied deflator. It requires a full explanation and this is missing but also there is an issue around the size of it.

    I guess not many read the accounts that far and once there (as you know) implied deflators are something which have attracted my attention in more and more places.

  • Anonymous

    Hi DaveS

    In theory trade figures are a good guide, the problem comes in measuring them as the numbers are even more unreliable than the GDP ones. To such a point that monthly trade figures should not really be produced.

  • Anonymous

    Hi Rods

    Thanks for his “insight”! Usually those sort of arguments rely on a country’s ability to print more money to pay its debts which of course France ceded from the Bank of France to the ECB.

    As to my point today if we look at 2011 some odd things have happened since we were first told that Spanish GDP has increased by 0.7%. We may not be surprised that this has been revised down now to 0.1% but reducing the deflator should have improved the numbers so that overall they are now around 1.4% out. Now we deserve an explanation I think….

  • Anonymous

    Hi Forbin

    Even the serial optimists who compile the forecasts for the IMF are unable to get theirs above zero growth in 2014 in spite of a heroic assumption about export growth. So the pressure will continue to build I think.

    As to the Spanish people I do not think that they are being told the truth, mind you that is true in many places!

  • Anonymous

    Hi Noo2

    I have illustrated the issue which is somewhat detailed and I confess has wonkish routes. But 2011 is now well in the past but Spain has done the following.

    1. Changed it GDP growth estimate from 0.7% to 0.1%

    2. Reduced its implied deflator by around 0.8%

    The catch is that for the same numbers less inflation should mean higher and not lower real GDP growth. So the initial numbers were very wide of the mark.

  • Anonymous

    Indeed there is a whole orchestra of fiddlers out there, sawing away for all they are worth. The conductor is the chancellor.

  • Anonymous

    Well yes, slight mis-pronunciation. Spanish Eyes!

  • Anonymous

    Indeed the numbers are unreliable. Nearly everything economic in Spain is being manipulated. But the underlying problem is that the country had a ‘very vibrant’ housing and other construction sector and now it doesn’t. And it won’t have, as there are still >1m unsold new houses. Many people were employed in that sector and many more moved to Spain to work in it, often for cash in hand. The implications for the lenders in that sector are obvious, enormous and still remain unpublicised. In my view, a very large proportion of Spanish banks and cajas is and will remain insolvent. Rajoy is desperately hoping that growth will mask and reduce those problems, but he’s dreaming. And an overt banking bailout from Germany would spell political disaster for the PP. Of course the 27% (formally reported) unemployment, mostly young people, is a disaster that will not disappear overnight. I think the most likely outcome is a decade of stagnation and growing political unrest.

  • Anonymous

    On your last point James, it’s important to remember just how much cash the EU has sent to Spain. Last time I saw a figure (a couple of years ago) it was €180bn since joining. That sort of sum in a poor country has made a huge difference and though the EU is not the EZ, the general positive aura of all things ‘EU’ will take quite a while to dissipate. Think roads, railways, airports, schools, hospitals, even the plazas mayores in many, many Spanish towns and cities. Brussels has indeed been the economic saviour of the grimy, dilapidated Spain of the 1980′s and I guess the population see that and just want it to continue. Which it will.

  • Anonymous

    Excellent post, Shaun. Regarding the revisions to exports and imports, the Spanish national accounts do publish a series for what they call national demand (GDP less net exports), and the ESA 2010 manual calls domestic final expnediture. The release I looked at shows clearly how the revised contributions of national demand to GDP are smaller than the original published ones. They don’t seem to be trying to hide the slightly more dismal picture of the domestic economy that their revised estimates show.

    The ESA 2010 manual recommends that countries calculate real gross domestic income (GDI) estimates that would be GDP plus the trading gain. The trading gain would be measured as the difference between the directly deflated nominal trade balance and real net exports. This would be a better measure of a country’s national welfare than GDP, but I don’t know if Spain calculates such a thing.

    Canada has published real GDI and real Gross National Income measures for some years now.

  • Anonymous

    Oh apologies and yes that does look more accurate….

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