Grenn Shoots

After more or less stabilising in Q2, the Spanish economy should start to recover from Q3 thanks to exports. PMI indices for August moved up above the expansion threshold in both industry and services. However, the recovery will probably be sluggish. Although fiscal austerity has been eased, it remains restrictive. The stubbornly high level of unemployment and the still significant rate of household indebtedness will hit consumer spending, whilst weak lending will restrain investment. Lastly, the correction of the real estate bubble has not yet fully run its course. As for the public finances, substantial efforts are still required, including structural reforms.

“Brotes verdes”
Figures for Q2 confirmed that the Spanish economy has more or less stabilised. GDP was down only 0.1% q/q. Thus over the year, GDP had contracted by 1.6%. As has been the case since Q2 2010, the contribution from international trade was positive (0.2%) and almost completely offset the negative contribution from domestic demand (-0.3). Exports grew 6% q/q.

Growth will probably resume in Q3 thanks to the strength of exports, which will be boosted by competitiveness gains and improved economic conditions in the euro zone. The contraction in domestic demand is likely to continue to ease, following the relaxation of fiscal consolidation and better financial and monetary conditions. Consumer spending stabilised in Q2, ending a sequence of four consecutive quarters of sharp falls (1.1% q/q on average). Survey data shows an improving trend in confidence since the beginning of the year. PMI indices suggest an imminent recovery. The industrial index rose above 50 (the growth threshold) in August for the first time since April 2011, whilst in services the figure was 50.4, its highest since May 2010.

The improving picture painted by surveys is backed up by data for economic activity. Industrial production, which fell 6% last year, was down by “only” 2.7% in the first half of 2013 (compared to the same period in 2012). The same is true in the services sector, where the contraction of turnover is coming to an end. Activity is likely to pick up in the second half, driven by exports. Over the first six months of the year, there was a trade surplus of EUR14.4 billion in goods and services (compared to a EUR464 million deficit in the first half of 2012). Lastly, there also signs of improvement in employment.

Between March and July the number of registered unemployed fell by 341,000. Granted, the bulk of this fall was due to the summer season and was thus temporary by nature. Even so, this is a record fall, reflecting the excellent 2013 tourist season, which brought the highest visitor numbers of the past ten years.

BY Thibault MERCIER

To Read the Entire Report Please Click on the pdf File Below.