Research Dept. News
|
|
|
|
Monthly Report, num 285 - November 2005
|
|
|
Spain: overall analysis - Economic activity
|
|
|
|
|
Growth continuing but imbalances fail to improve
|
|
Spain’s economy maintaining high growth rate although it may have begun to reach ceiling.
|
|
Spain’s economy continued full steam ahead in the third quarter of 2005, according to the main economic activity indicators. In the absence of confirming figures from National Accounting, available information so far would indicate stable growth in recent months. This may be seen in the following graph which shows the trend in the composite economic activity indicator prepared by the Ministry of Economy and Finance from a broad range of indicators.
|
|
|
|
Is it possible to say then that growth of economic activity has hit a ceiling? With due caution, the answer is «Yes». Except in the case of an unexpected turn-around in current trends we could move into a more moderate path in coming months which, in its most positive aspect, could contribute to relieve the pressure on the major imbalances now being shown by Spain’s economy (the inflation rate has jumped above the level of 3.5% and the current account balance has beaten all records in the first seven months of the year).
|
|
|
Good figure for industry in August fails to hide delicate situation in some sectors (textiles, electronics and motor vehicles, among others).
|
|
In August industry showed the first positive sign in this direction seen in a long time. In fact, the industrial production index recorded year-to-year growth of 3.2% that month (keeping in mind calendar adjustments), thus breaking with the earlier regressive trend. Nevertheless, this figure should be taken with some caution because it refers to a month characterized by low seasonal activity. What has not changed at all is the delicate situation in some branches of industry, including textiles, clothing and furs, and the electronics industry with decreases of close to 10% year-to-year on average in all of these as of August. Because of its significance, we should mention the drop of nearly 6% in the index for motor vehicles over that 8-month period.
|
|
|
|
The increase in utilization of production capacity, which went above 81% in the third quarter (an historically high value), is a figure which allows for no simple interpretation in current circumstances. In principle, it could indicate a prudent attitude on the part of companies with regard to expanding production capacity. For the moment, the most positive sign is the slight improvement in order books reported by the European Commission survey, although it is yet to be seen if this will be confirmed in coming months.
|
|
|
Moderation in rise of housing prices and slowdown in foreign investment could mark beginning of less dynamic stage in real-estate sector.
|
|
On the other hand, construction continues to show considerable strength, as seen in most indicators, including cement consumption, and the maintenance of high confidence indices in the sector. In any case, while housing construction continues to rise, some signs of wearing out of the boom seen in recent years are beginning to show up. If we look at the trend in prices, which is a sure sign of the state of the sector, we recently note more moderation in the growth rate, as may be observed in the accompanying graph. Another significant fact is the slowdown of foreign investment which is one of the factors which has fed into this boom in the past.
|
|
|
|
|
With regard to services, the situation is generally positive with information technology and communications, company services and retail trade among the most dynamic sectors. Tourism, of major importance in Spain’s economy as a whole, is maintaining a somewhat more positive performance than was forecast at the beginning of the season. Domestic tourism continues to grow at a very notable rate and the inflow of foreign visitors has also risen considerably (growth of low-cost airlines has undoubtedly worked to foster this) but there is a trend to a reduction in spending and to shorter average stays.
|
|
Increase in oil prices not for moment causing visible damage in Spain’s economic activity but, if situation continues, growth potential (along with prices) could finally be affected.
|
|
In order to complete the present picture of Spain’s economy, from a demand perspective, we should add that both private consumption and investment continue to grow at a sustained rate and there is no reason for this to cut out over the short term. The only reason for concern is the persistence of high oil prices. For the moment, the impact on economic activity has been fairly moderate given that the factors driving Spain’s economy have been able to counteract the negative effects of the rise in crude oil prices. Nevertheless, if pressures on fuel prices fail to ease, growth potential and prices (the most stable components of the CPI) could be affected to a greater or lesser extent in coming months.
|
|
Both consumption and investment growing at very stable rates in recent months with notably sharp rise in imports.
|
|
With regard to consumption, the indices as a whole point to relatively stable overall growth although they show big differences between them. For example, passenger car registrations rose by 2.3% year-to-year in the third quarter, a rate lower than that for the previous quarter although, in absolute figures, levels recorded continue to be the highest in history. On the other hand, retail trade showed a good figure in August with a year-to-year increase in constant prices of close to 3% (above 4.5% in department stores) thus breaking the mediocre situation seen in previous months.
|
|
|
|
Finally, with regard to capital goods investment, the rate of increase in nearly all indicators continues to be very high but there has been a halt to the earlier sharp rise. Under this heading, the strength of imports, which rose by more than 27% in the first eight months of the year, was in contrast to the stagnation in domestic production.
|
|
|
You can susbcribe now to be nofified by email every time the Monthly Report is updated in the internet.
|
All documents are in Adobe Acrobat format (PDF).
To view a document in PDF format you need the Adobe Acrobat Reader. If you don’t have it already loaded on your computer, you can donwload it now.
|
|
Direct link to the Research Dept. in your mobile
We'll send you a free SMS with the link
|
