|
|
|
|
Economic activity
|
The squeeze eases
|
|
Growth forecast improves for the fourth quarter of 2009.
|
|
Economic indicators available referring to the fourth quarter of 2009 suggest that the economy is continuing to moderate its decline. Both consumption and investment show signs of improvement although the general tone is still negative in hue. We have therefore modified our forecast of a year-on-year decrease in gross domestic product (GDP) for the fourth quarter from 3.4% to 3.1%. The annual fall in GDP for 2009 would therefore be reduced by one-tenth of a percentage point compared with the previous forecast, to 3.6%.
|
|
Corporate results continue to decline.
|
|
Within this context, the figures from the Quarterly Composite Balance Sheet of the Bank of Spain are interesting as they throw light on the situation of firms, since net employment can only start to be created once this situation improves significantly. According to the results of the third quarter of 2009, the accumulated gross value added by non-financial firms in the sample, obtained by deducting intermediate consumption from the value of production, fell by 13.1% compared with the same period the previous year, and all sectors shrank in general. However, this decline appears to have slowed up to some extent.
|
|
|
|
Staff costs fell 1.1% in the first three quarters of 2009 in year-on-year terms. This was due both to lower salary increases and a fall in employment. In spite of this containment, however, corporate surpluses continue to decline.
|
|
|
|
|
Financial income fell because of lower interest rates and fewer dividends, while financial expenditure fell further due to less debt. Subsequently, net income fell 21.8% compared with the same period in 2008.
|
|
|
|
Non-recurring income also fell, as there were no strong gains due to sales of shareholdings, which had taken place in the same period in 2008. Consequently, net profit fell by 29.7%.
|
|
|
|
Ordinary return on investment was 5.6%, 1.7 percentage points less than in the same period in 2008. Ordinary return on equity was 7.4% as a consequence of leverage, although 1.9 percentage points less than a year before.
|
|
Retail sales slow up their fall...
|
|
Returning to the overall situation, retail sales continued to slow up their decline in October. For their part, automobile registrations speeded up, with a rise of 37.3% in November thanks to direct subsidies from the plan promoted by the government and most autonomous communities. The consumer confidence indicator stabilized in October and November at a level slightly higher than the one recorded in the first half of the year and in 2008, but below the historic average.
|
|
...and consumer confidence rises.
|
|
With regard to investment, we should note the slight improvement in load-carrying vehicle registration, which moderated its decline to 0.6% year-on-year in November, helped by the Plan 2000E. In investment in construction, cement consumption slowed up its decline to 9.3% in November compared with twelve months before.
|
|
|
Industrial capacity utilization picks up.
|
|
From the point of view of supply, industry put a brake on its decline in October. Industrial capacity utilization picked up slightly. The prospects for the secondary sector are less morose than a few months ago but are still hindered by low demand and the accumulated problems of competitiveness, made worse by the appreciation of the euro.
|
|
|
|
The real estate sector is still sluggish. According to figures from the Ministry of Housing, the average price of urban land fell 7.5% in the third quarter compared with the same period of the year before.
|
|
|
|
Sales of new homes slackened in October. However, the confidence indicator in construction improved in November, although still slightly below the historic average.
|
|
New Sustainable Economy Act.
|
|
With regard to services, recovery in the markets of origin has curbed the decline in the tourist industry. The transport sector also seems to have lessened its drop in business.
|
|
|
|
The government passed the draft bill for the Sustainable Economy Act, which aims to promote a change in Spain's economic model over the next decade. It includes a fund of 20,000 million euros to finance the private sector for R&D projects, company internationalization, energy savings and efficiency and the development of social and health services. The Official Credit Institute will provide 10,000 million and financial institutions will be able to fund up to 50% of sustainability projects.
|
|
Economic growth expected to improve.
|
|
This new Act includes a reform of regulatory bodies, improvements to the supervision of the financial sector, reform of public employment, simplified administration, a reduction in public administration late payments and a number of fiscal measures, of note being the improvement in the fiscal treatment for renting and also reconditioning homes.
|
|
|
|
Within this context, the prospects for 2010 are that the economy will continue to improve, with positive year-on-year growth possibly appearing by the second half of year. This recovery will be the result not only of the contribution made by the foreign sector but also by the resurgence in consumption. For its part, investment will continue to reduce its rate of decline.
|
Labour market
|
Job losses are slowing up
|
|
Employment is back on the road to recovery.
|
|
After two months in which the fall in unemployment slowed up, in November it was back on the road to recovery. In this month, the number of people registered as employed with Social Security totalled 17,847,669 as a monthly average. This represents a month-on-month drop of 61,276 people but compares favourably with the fall of 197,087 in November 2008.
|
|
|
|
Overall, in the last twelve months the number of people registered as employed with Social Security fell by 4.7%, a lower figure than that posted in the preceding months. Most employment sectors recorded annual decreases in workers. However, both the special group of self-employed farm workers and that of household workers increased their number of registered workers over the last year, by 7.4% and 1.1%, respectively.
|
|
In November, the subsector creating most jobs is education.
|
|
In November, the subsector creating most jobs was education, up year-on-year by 3.3%, but other branches such as extra-territorial organizations and bodies, public administration, information and communications, electricity and gas, health and social services and scientific and technical professions also grew.
|
|
|
|
In the last twelve months, apart from farming, which increased its number of workers by 3.9%, the only subsectors posting growth were some branches of services such as extra-territorial organizations and bodies, health and social services, public administration, domestic services and education. The biggest year-on-year falls were recorded in construction, namely 18.6%, with manufacturing industry down 10.5%.
|
|
|
Record proportion of women registered as employed with Social Security, at 44.4%.
|
|
Employment registrations fell in the month both for men and women, but more markedly for the former. The share of women out of the total employed is therefore still rising, posting a record 44.4%. The same trend has been seen over the last twelve months, namely a drop of 2.4% in women employed and of 6.4% in men, more concentrated in those sectors most affected by the economic crisis. This also meant that the number of foreign nationals registered as employed suffered its biggest annual drop of 6.6%, while Spanish registrations fell by 4.4%.
|
|
Temporary contracts show positive trends.
|
|
The easing in the recession led to a 3.6% year-on-year increase in the number of contracts registered in November, the first rise in nineteen months. This was due to a 6.1% annual rise in temporary contracts, since permanent contracts fell by 16.8%.
|
|
|
|
Employment is expected to improve gradually over the coming months although, overall, it is unlikely to grow until gross domestic product posts significant increases.
|
|
|
Reforms likely in the job market.
|
|
At the beginning of December, the central government announced its intention to promote reforms in the job market as part of social dialogue, including: encouraging shorter working days as an instrument to temporarily adjust employment; changes in the collective bargaining system to improve firms' internal flexibility; revision of the employment contract rebate policy; measures to reduce temporary employment rates and the introduction of effective incentives to prolong working life.
|
Less registered unemployment than expected in November
|
|
|
|
In line with the job losses in November, the ranks of registered unemployed swelled by 60,593 people, up to 3,868,946. However, the monthly rise was lower than expected and slightly less than one year earlier, indicating that unemployment is slowing up. In year-on-year terms, registered unemployment continued to slacken, posting a percentage change of 29.4%.
|
|
|
|
According to Eurostat data, the unemployment rate continued to rise in October to 19.3% in homogenized terms. Consequently, unemployment in Spain was more than double the average for Europe, placing it second, behind only Latvia.
|
|
The rate of cover for unemployment rises to 75.3%.
|
|
Rising unemployment has led to expanding costs in order to protect the unemployed and these totalled 2,664 million euros in October, an annual increase of 33.0%. The rate of cover rose to 75.3%. On the other hand, foreign beneficiaries accounted for 73.2% of all foreign job-seekers.
|
Modest slowdown in labour costs
|
|
|
|
Statistics from the quarterly labour cost survey for the period July-September show that companies' labour costs have continued to ease. However, this slowdown can be classified as slight, considering the disinflation of prices and rising unemployment. Average labour costs for firms stood at 2,429 euros a month, a rise of 3.3% compared with the same period the previous year.
|
|
|
|
|
Salary costs totalled 1,776 euros on average, a year-on-year increase of 3.1%. Ordinary salary, excluding extraordinary and deferred payments, was 1,622 euros per worker and month, 3.0% more than in the third quarter of 2008. Non-salary costs rose 3.9% year-on-year while their main component, mandatory Social Security contributions, increased by 2.8%. Non-salary payments were up 12.0% due to the rise in redundancy pay and company benefits paid by employers.
|
|
Construction posts the highest increases in labour costs.
|
|
Construction was the sector with the highest increases, both in terms of labour costs and ordinary wages and redundancy costs and compensation for terminated contracts. Industry posted the lowest salary growth of 2.0% due mostly to the high number of temporary measures to adjust employment conditions that are taking place in the sector.
|
|
|
|
Labour costs per effective hour worked totalled 19.55 euros, a year-on-year increase of 4.2%, slightly higher than in the European Union. This increase, greater than the rise in cost per worker, is due to a 0.8% fall in the number of effective hours worked.
|
|
|
|
The average gain per worker and month of 3.1% was notably higher than inflation for the period and workers' purchasing power therefore increased by 4.2% in annual and real terms, 6 tenths of a percentage point more than in the previous quarter.
|
|
|
|
Other salary indicators, such as raises contained in labour agreements and labour costs in construction, also show signs of deceleration in the third quarter. However, this slowdown is very moderate, with the exception of the daily wages for farm workers, which posted an annual rise of 0.3%, 3.7 points less than in the previous quarter.
|
Prices
|
Inflation returns to positive figures
|
|
|
|
After eight months of negative year-on-year change, the consumer price index (CPI) increased 0.3% in the month of November 2009 compared with the same month the year before. This year-on-year rate therefore rose by one percentage point compared with the previous month, thereby fulfilling the forecasts that inflation would return to positive figures towards the end of the year.
|
|
The upswing in prices is boosted by fuels and oils.
|
|
The upswing in inflation in the last few months was boosted by the energy component. Specifically, fuels contributed 9 tenths of a percentage point to the increase in the year-on-year percentage change in the CPI in November, rising 2.6% this month compared with a fall twelve months before.
|
|
Slight decline in fresh foods.
|
|
However, the contribution of the other volatile component of the CPI, fresh foods, was marginally negative. Their year-on-year percentage change fell 0.15 percentage points, posting a drop of 2.7%. In fact, the rises in some foods such as pork and fish were counteracted by falls in others, such as lamb and mutton, chicken and fresh fruit.
|
|
|
|
The most stable core of inflation, also known as underlying inflation, which excludes unprocessed foods and energy products, rose by one tenth of a percentage point in November and stood at 0.2% year-on-year. It therefore increased for the first time in half a year. To a certain extent, this turnabout reflects the improved economic situation as the recession eases.
|
|
Slight upswing in core inflation to 0.2%.
|
|
The slight upswing in core inflation is actually attributable to non-energy industrial products. These prices slowed up, although their year-on-year decrease was 1.7%, 3 tenths of a percentage point less than one month earlier. This slowdown was mostly due to clothing and footwear, which contributed almost one tenth of a percentage point to the increase in the CPI year-on-year rate, picking up after sharper falls than those of a year ago.
|
|
|
|
|
On the other hand, processed foods accelerated very slightly, with a moderate annual increase of 0.5%. Rises in oils and milk were largely offset by other falls, such as dairy products. For their part, the year-on-year change in service prices held steady at 1.6%, the lowest for the last few decades.
|
|
Inflation would be flat without the higher taxes.
|
|
It should be noted that prices would have remained at the same level as last year had it not been for special tax increases on tobacco and hydrocarbons in June 2009. This is deducted from the percentage annual change in the harmonized consumer price index for constant taxes, which in September and October was 3 tenths of a percentage point different from the harmonized general index.
|
|
Favourable inflation differential with the euro area falls to 0.1%.
|
|
The EU harmonized consumer price index (EU HCPI) increased 0.4% in 12-month terms, a rise of one point compared with the previous month's rate. Consequently, the differential with the euro area, favourable to Spain, fell to one tenth of a percentage point, 0.8 less than the maximum recorded in the month of May.
|
The fall in wholesale prices eases
|
|
|
|
The year-on-year fall in wholesale prices has slowed up over the last few months. This reflects the trend in commodity prices that, after plummeting in 2008, have seen a moderate upswing.
|
|
|
|
Import prices slowed down their year-on-year drop to 7.2% in October, 2 points less than the previous month, in spite of the appreciation of the euro. This slowdown was due to lower drops in energy prices and intermediate goods. Meanwhile capital equipment prices moderated with a slight year-on-year rise of 0.9% and consumer goods accentuated their fall to 2.1% annual.
|
|
Slight recovery in prices for agricultural and animal products.
|
|
Lastly, in September farm prices at source continued to put the brakes on their year-on-year drop after having slumped at the start of the summer. This was due to arable and animal products such as milk, since meat products increased their decline to 3.6% year-on-year.
|
Moderate price rises in Spain
|
Inflation will not be negative but will be restrained
|
|
|
|
The average inflation for consumer prices in 2009 will be negative for the first time in the last few decades, compared with the 4.1% average of last year. But this average obscures the marked fluctuation occurring throughout 2009. The slowdown in prices started in August 2008 continued during the early part of 2009, up to the biggest year-on-year drop in consumer prices of recent decades, namely 1.4% in July 2009. But from then on there was an upswing so that, in November, year-on-year inflation returned to positive figures at 0.3%. Will it also be negative in 2010? No, as discussed in the rest of the box, but it will remain at a low level.
|
|
|
|
The ups and downs of the inflation rate have been strongly affected by the trends in the energy component, which closely mirrors variations in oil prices. After a record high of 147 dollars per barrel in July 2008, the price of crude slumped to 37 dollars in December of the same year, but since then has tended to pick up again, going above 70 dollars per barrel in November and December 2009. It's reasonable to predict a rise in the price of this black gold in 2010 due to the surge in the world economy. However, this recovery will probably be gradual and, given the worldwide surplus capacity in crude production, we don't expect any sharp rises in oil prices. Overall, energy prices will probably boost the general consumer price index.
|
|
|
|
But energy isn't the only component that introduces an element of uncertainty into the inflation trends for 2010, as unprocessed food prices are also a highly volatile component, being strongly affected by international commodity markets. With the information currently available, it seems that these prices will continue to recover, albeit moderately.
|
|
|
|
|
And what's happening with the more stable core of prices, also known as underlying inflation, which excludes unprocessed foods and energy products? Throughout 2009 this has gradually fallen to close to 0% in September and October, forced down by the squeeze on family consumption. However, in November it picked up to 0.2% and might have bottomed out with the slight improvement in the economic situation. In 2010 it will probably recover slightly.
|
|
|
|
Another element to take into account in price trends for 2010 is the expected rise in value added tax as from July. An increase of 2 points from 16% to 18% in the general rate and of one point in the reduced rate, from 7% to 8%, represents a theoretical increase in inflation for consumer prices of 1.2 points, if these rises are passed on to prices in their entirety. However, this is not likely to happen given the weakness of demand, so the effect will probably only be half this figure, the rest being absorbed by smaller business margins.
|
|
|
|
From the point of view of costs, competitive pressure in an environment of decreasing consumption has led to the diminished business margins, as many companies have decided to cut prices to stop their sales from falling. Salary statistics also show a slowdown, although this is very slight considering the extent of the recession and rising unemployment. So what will happen in 2010? The weak economy will continue to restrain companies' margins, while salaries will probably slow up, especially taking into account the fact that they will be based on a lower past inflation rate.
|
|
|
|
Consequently, more moderate costs, together with improved productivity, might mean that the inflation differential with the euro area, Spain's main trading partner, will not deteriorate noticeably. This differential has been favourable for the Spanish economy since December 2008, representing a gain in price competitiveness. However, after a record 0.9 percentage points in May, this differential has tended to shrink.
|
|
|
|
In conclusion, although prices have picked up since July 2009 and will probably end the year at around 1%, competitive pressure in international markets within a context of globalization and surplus industrial capacity, and also the slight improvement in the economy, will keep inflation restrained. Consequently, and as part of the adjustment in the Spanish economy, prices will continue to reflect the weakness in demand and inflation will continue at low levels, although the trends in commodity prices are somewhat uncertain.
|
|
|
|
|
This box was prepared by Pere Miret
|
|
|
|
European Unit, "la Caixa" Research Department
|
Foreign sector
|
Current deficit continues to fall
|
|
Current balance deficit falls in September to 6.2% of GDP.
|
|
The current deficit for the month of September was 4,400 million euros, 45.6% lower than the same month in 2008, representing the fourteenth year-on-year drop in fifteen months. This meant that the current imbalance accumulated over the last twelve months fell by 40.6% compared with the previous year, totalling 65,270 million euros, equivalent to 6.2% of gross domestic product (GDP). Although still high, this figure is more than four percentage points lower than the maximum reached in June 2008. This falling trend in the deficit is expected to gradually diminish over the last months of 2009, ending up between 5.0% and 5.5% of GDP.
|
|
Income balance deficit is lower in the third quarter.
|
|
Although this new drop in the current balance is in line with the others recorded in 2009, differences can be observed in how its components have fared. During the first half of the year, the drop in current imbalance was caused almost entirely by changes in the trade deficit. However, the reduction in the income balance deficit in the third quarter, namely 4,803 million euros, accounted for more than a third of the adjustment in the current imbalance thanks to the strong reduction in salary paid abroad. The following graph clearly shows this shrinkage in the income balance in the third quarter.
|
|
|
|
|
In addition to the smaller fall in the deficit for the balance of goods, due to a similar decline in both imports and exports, and to the compensating effect of the income balance, of note is the 3.3% reduction in the surplus of the services balance compared with September 2008. This is the result of the decline in the tourism component, where the drop in revenue was greater than the drop in payments, although they posted lower year-on-year falls of 10.0% and 16.0% respectively.
|
|
Financing needs at similar levels to 2005.
|
|
In spite of the shrinkage in the capital account surplus, which came very close to zero, the improved current deficit reduced financing needs by 43.2% in September 2009 compared with the same month last year. Over a timescale of twelve months, financing needs fell by 39.7%, reverting to levels similar to those of 2005 in relation to GDP (5.8%). From the perspective of institutional sectors, this reduction was caused by trends in household and corporate net savings, which offset the higher government debt over the last year.
|
|
|
|
Consequently, the economy's two main sources of financing saw significant reductions. On the one hand, the net liabilities of the Bank of Spain fell during the first nine months of the year by 25.5% due to banks resorting less to the liquidity auctions of the European Central Bank.
|
|
Short-term investment falls 92% in the first nine months of 2009.
|
|
However, funds taken up by resident sectors fell further in this period, by 58.4%. The biggest change was in short-term investment with a drop of 92.2%. This highlights how traditional credit markets are getting back to normal, leaving behind the financial turbulence that appeared as a result of the subprime crisis. The main net inflows of capital in this period came from portfolio investments due to the increase in entries of funds from abroad.
|
Savings and financing
|
Families and firms are coming out of debt
|
|
12-month Euribor hits a new record low in its monthly average for November and may have touched bottom.
|
|
The 12-month Euribor, widely used as a reference rate, set a new record in the month of November by falling to 1.23%, one basis point less than the previous month and 312 less than a year earlier. The 12-month Euribor therefore reflects the progressive fall in the official European Central Bank interest rate to 1% last May and the gradual reduction in interbank risk premium as markets tend to get back to normal. However, during the first few weeks of December and after the announcement that the European monetary authority will gradually withdraw its extraordinary measures to inject liquidity, the 1-year Euribor has wavered a little above November's rate.
|
|
|
|
Interest rates for loans and credit in the private sector continued to fall in October in line with the drops in interbank interest rates. Consequently, the average interest rate stood at 3.44%, 312 basis points less than twelve months before.
|
|
|
|
However, the financing of firms and families was still weak due to the recessive economic situation and balance adjustments, as debt had reached very high levels. Consequently, and for the first time in this cycle, the year-on-year financing rate for the private sector was slightly negative. This situation is similar to that of the euro area as a whole, where private sector loans fell 0.8% year-on-year in October.
|
|
|
|
|
The financing of non-financial firms saw no change in October compared with twelve months before, while resident financial institution loans fell by 2.8% compared with a year ago. This drop was offset by the 29.5% year-on-year rise in bond issuance and 5.0% rise in foreign loans. Large firms continued to take advantage of improved market conditions to obtain funding.
|
|
Credit trade still sluggish.
|
|
Credit trade, aimed at financing firms' working capital, continued weak, with a year-on-year drop of 32.7% in October. Financial leases, used to fund investment, did not perform well either, with a drop of 16.6% compared with October 2008.
|
|
Credit is shrinking in all large sectors except services.
|
|
By sector, with data covering up to the end of the third quarter, it can be seen that the slowdown in credit is widespread. Construction is the sector with the highest year-on-year drop, down 14.3%, followed by the primary sector with a fall of 11.3%. Credit to industry, strongly affected by the crisis, was also down 1.6% compared with twelve months ago whereas credit to services was 2.8% higher than twelve months ago, although this rate of change is still 9.5 points lower than last year. In the tertiary sector, real estate showed similar annual growth of 2.9%, 5 points less than twelve months before.
|
|
Consumption credit down more than 10%.
|
|
The effective flow of financing to households in October was positive, totalling 776 million euros, although this still fell slightly in year-on-year terms with a drop of 0.2%. Credit to housing was up a little by 0.1% compared with twelve months before, while the rest of financing fell by 1.2%. The larger credit squeeze was for the purchase of consumer durables, such as automobiles, motorbikes, furniture, etc., which fell 10.8% in September compared with the same month in 2008. This is the result of lower demand together with relatively high interest rates of 11.0% that include a higher risk premium due to the rise in bad debt, although these fell to 10.2% in October.
|
|
Default rate up to 5% in October.
|
|
The default rate for credit institutions has tended to rise since 2007 and reached 5.0% in the month of October. By component, and with data covering up to September, it can be seen that the default rate for mortgage-backed housing purchases fell to 3.0%. However, both the rate for real estate activities, namely 8.7%, and that for consumer durable acquisitions, 7.8%, were above the average.
|
|
|
|
Lastly, net financing for general government continued to expand strongly, posting a year-on-year increase of 36.4% in October. However, this rise only partially offset the slowdown in the private sector, so that the overall financing to non-financial sectors continued to slow up to 4.2% year-on-year.
|
On demand deposits perk up
|
|
|
|
The yields on bank deposits in the private sector stood at 1.27% on average in October, 2 basis points higher than the previous month but 208 less than twelve months before, reflecting the cuts in the official interest rate for the euro area. However, the average return was slightly above inflation for the period.
|
|
|
|
Within this context, and given the weak economy, bank deposits continued to moderate slightly to a year-on-year rate of 4.0%. On demand deposits soared with a year-on-year rise of 9.1%, 5.9 points more than in September. This acceleration can be explained by a greater preference for liquidity by savers, given the uncertainty regarding how the economy will perform in the future and rising unemployment. Savings deposits also rose 15.9% compared with twelve months before whereas time deposits, directly affected by competition from other financial products, slowed down to a growth of just 1.2%.
|
|
Mutual fund assets continue to rise and their average annual return goes up to 4.4%.
|
|
In November, mutual fund assets continued to rise, totalling 163,026 million euros at the end of the month with a 0.6% year-on-year increase. This can be attributed to the gains generated by the good performance of the financial markets, as net withdrawals were recorded totalling 382 million euros, albeit the lowest for the year. However, the number of participants rose for the second consecutive time in the year, up to 5,617,987, and the average annual yield went up to 4.4%.
|
|
Slight growth accumulated for direct insurance premiums up to September.
|
|
On the other hand, direct insurance premiums increased by 0.6% in January-September compared with the same period the previous year. This increase was due to premiums from the life assurance branch, up 4.9% in year-on-year terms, as premiums from the other branches fell 2.9%, of note being the drop of 6.2% for vehicles.
|
