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Economic activity
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Consumption and the foreign sector drive growth
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The accumulated drop in the 2008-2009 recession was 4.6%, compared with 1.7% in the previous 1992-1993 recession.
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After seven quarters of recession, the economy started to grow in the first quarter of 2010, posting an increase in gross domestic product (GDP) of 0.1% compared to the previous quarter, according to data from the National Accounts system of the National Institute of Statistics. This recession has been the worst for the past few decades and was longer than the previous recession of 1992-1993, lasting five quarters. It was also slightly more intense, as the accumulated drop in GDP was 4.6%, compared with 1.7% previously. However, the year-on-year rate of change of GDP was still -1.3% in the first quarter of 2010, although up 1.8 points compared with the fourth quarter of 2009.
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Domestic demand continued to improve in the first quarter of 2010, reducing its negative contribution to the year-on-year growth in GDP by 2.8 points to -2.5 points. The contribution made by foreign demand was positive for the ninth consecutive quarter but fell by one point to 1.2 points.
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Household consumption livened up and posted quarter-on-quarter growth for the second time in a row, although its year-on-year rate of change continued negative, namely -0.6%. This upswing was in line with the trend in disposable income. The wages of salaried workers reduced their decline to 1.2% year-on-year in nominal terms thanks to the slowdown in the drop in employment to 3.6%. In the first quarter, of note is the vitality of spending on durables and, to a lesser degree, on food, while the rest of the components were below the levels of a year ago.
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Expenditure on public consumption picked up in the first quarter with a year-on-year increase of 1.5%, 7 tenths of a percentage point more than the previous quarter. There were rises both in the wages of public administration employees as well as in purchases of goods and services and the social transfer of products acquired in the market to supply families directly.
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Upswing in consumer confidence in April.
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In April, car sales continued at a good pace thanks to direct aid from the Plan 2000E. They were also helped by demand being brought forward due to the expected hike in value added tax in July 2010 and the impending end of the total amount of aid available. Consumer confidence also picked up in April after falling in the previous two months.
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Investment is leaving behind the worst moments of the recession.
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Investment was still hindered by low production capacity utilization and falling corporate profits. Overall, its year-on-year rate of change rose 3 points to -9.9%. This attenuation came particularly from capital goods and to a lesser extent from other products, such as mining and oil prospecting and software. Investment in machinery was 3.8% below that of the first quarter of 2009, while investment in transport material was at the same level as twelve months ago.
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On the other hand, investment in construction fell 10.6% in year-on-year terms, 4 tenths of a percentage point more than the previous quarter. This decline was due to infrastructure works, so that construction other than housing fell 2.8% compared to a year earlier, with an annual rise of 2.4% in the fourth quarter. With regard to investment in housing, this continued to be affected by the real estate crisis and posted a 20.7% drop year-on-year. However, this fall was 3.8 points less than that recorded three months earlier. Similarly, housing transactions picked up by 9.7% year-on-year in the first quarter, encouraged by the low interest rates, lower prices and by demand being brought forward due to the hike in value added tax in July and the partial withdrawal of the tax deduction in 2011.
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Apparent cement consumption, a leading indicator, also continued to moderate its decline in April. However, confidence in construction was worse than in March.
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Both exports and imports posted positive year-on-year rates of change.
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With regard to foreign demand, both the exports and imports of goods and services grew compared with the first quarter of 2009, something that had not occurred since the first half of 2008, but the progress made by exports was greater than imports. The push by exports was driven by the improvement in the situation of foreign markets, especially in the European Union. The rise in both cases is due to goods, as services continued with negative annual change rates.
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Confidence improves, as well as new orders in industry.
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From the point of view of supply, of note is the improvement made by industry, whereas there was a decline in agriculture, affected by the bad weather conditions in the first three months of the year.
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The gross value added of the secondary sector fell by 3.1% compared with the first quarter of 2009, but 7.4 points less than in the previous quarter. The energy subsector posted a 0.3% year-on-year rise after five quarters of decline. Other dynamic branches were the manufacture of motor vehicles and metallurgy. Moreover, the confidence in industry continued to improve in April and new orders rose by 13.6% in March compared with the same month the previous year.
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Private services suffered a 0.7% drop compared to the same quarter the previous year but this fall was 1.1 points less than the previous quarter. The most dynamic branches were in retail trade. At the opposite end of the scale were information and communication technologies, as well as corporate services.
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Productivity slows up.
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As a consequence of the trends in GDP and employment, apparent labour productivity continued to slow up with a 2.4% year-on-year increase, 8 tenths of a percentage point less than in the fourth quarter of 2009. Given that the slowdown in wages was less, unit labour costs picked up slightly to 0.1%, nonetheless 3 tenths of a percentage point below the implicit deflator of the economy.
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Drop in the number of firms in receivership and rise in the creation of new firms.
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Another sign of the economy's improvement was that the number of unpaid negotiable instruments fell by 35.9% in the first quarter compared with the same period the previous year, helped by stricter risk controls. Similarly, the number of firms in receivership fell by 4.1% year-on-year in the period January-March, whereas the number of new companies set up rose by 1.1% in the first three months of the year, compared with twelve months before.
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The few indicators available for the second quarter point towards a continuation of this revival in the economy. However, the package of restrictive budgetary measures approved by the government in the third week of May, involving a further reduction in the public deficit of half a point of GDP in 2010 and one and a half points in 2011, might slow up the economic recovery slightly.
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Beyond bricks and mortar: the medium-term outlook for sectors
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Which sectors can drive business in a future cycle of growth?
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Construction played a key role in the last expansionary cycle of the Spanish economy. Its intense growth not only raised its share of GDP but, being an activity with a powerful knock-on effect, it also generated strong synergies of growth in other sectors of the economy. Once the recession hit, the tables turned and the sharp brake on property has affected the rest of its associated sectors. Moreover, the sovereign debt crisis means that the fiscal stimuli implemented to slow up the slump in demand will now have to be withdrawn sooner, damaging the perspectives for growth in domestic demand. However, the capacity of emerging countries to recover (China, Brazil, India, etc.), together with the United States exiting its recession, have meant that the foreign sector is one of the areas that is boosting demand in a large number of European countries.
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All these disturbances have been added to an economy that is in a complicated phase of the cycle, but it is estimated that the worst is now behind us. Within this state of affairs, one of the questions most often asked concerns the economy's capacity or potential for growth in the next expansionary phase. More specifically, which sectors will «drive» business, assuming that the role played by construction and the property market in the previous phase will not be repeated.
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Answering this question requires an analysis and prediction that is beyond the scope of this box. However, one way of providing an initial examination of growth potential at a sector and branch level of activity is by drawing up a taxonomy of these according to the destination of their sales. The criterion used to make this division is based on a future scenario in the medium term defined in accordance with the aforementioned parameters, i.e. construction and the property market will continue to be depressed, domestic demand will recover slowly and the greatest opportunities for growth will occur in export markets, preferably towards non-EU countries. We can therefore distinguish five groups of sector, using information available from the input-output tables for the Spanish economy produced by the National Institute of Statistics. This statistical instrument lists an economy's total supply of goods and services with their destination, distinguishing between production and imports and differentiating between intermediary consumption and end demand, in turn dividing the latter into its different components, i.e. end consumption, capital formation, exports, etc. This information helps relations between sectors to flourish and provides great insight into an economy's production and demand structure.
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In accordance with the criteria described, the first group is made up of those sectors most oriented towards exports and less dependent on construction activities, therefore the best positioned sectors, whose share of the total value added would be a little more than 17% (the data correspond to 2005, the last input-output table available). Here we find important sectors of the Spanish economy such as chemicals, agriculture and stockbreeding, car manufacture, machinery and mechanical equipment manufacture, textiles, clothing and footwear, electronic equipment, computing and office material.
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We can then define a second group made up of sectors that have little or no dependence on construction and are not very oriented towards exports, although a large number of these have the potential to increase their exports. These go to make up more than 27% of the total value added and, most importantly, they include the activities of the food, beverage and tobacco industries. Here we also find corporate services, wholesale trade and distribution of fuel, publishing and graphic arts, furniture, financial brokering and insurance, etc.
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The third group is made up of sectors that are highly dependent on construction but also oriented towards exports, a circumstance that should allow them to at least partially offset the adjustment taking place in the property market. These are metallurgy, machinery and electrical material, as well as ceramics and glass. This is the smallest of the groups, as it hardly achieves 2% of the value added.
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In fourth place would be those activities strongly linked, directly or indirectly, with construction and the property market and not very oriented towards exports, these being in the worst position. In addition to these two sectors, the group also includes the manufacture of metal products, cement, lime and plaster, wood and cork and recycling. These go to make up 25% of the value added for the year 2005, a year when these activities were on the rise, so that their relative weight will have fallen appreciably after the adjustment that has taken place to date.
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Lastly, we have also defined a group made up of services offered by the public authorities or non-exportable market services, such as domestic services and those related to people, with a share close to 30% of the total economy.
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This classification bears out the fact that the adjustment in the property market, whose effects in terms of growth are certainly relevant, is nonetheless limited in scope, since around three quarters of the economy has few direct or indirect links with construction. Moreover, the exporting core of the economy has an important weight that, although it won't make up for the decline in the property market, it will have the capacity to pull with it a large part of the rest of the sectors in the market, as well as possibly being reinforced by other activities whose export potential has not been fully exploited. It should be noted that, within this core, we find traditional industrial sectors that are not usually taken into account when debating the «sectors of the future» (motor vehicle industry, textiles, chemicals, food, etc.) but whose capacity to support growth and create jobs means they must be included in any development strategy. The key lies in those sectors with growth potential being within a suitable regulatory, financial and fiscal environment and in them being able to take on the tough international competition, orienting themselves towards those activities where they can maximise their profits and growth.
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This box was prepared by Joan Elias and Pere Miret
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European Unit, "la Caixa" Research Department
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Labour market
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The decline in the labour market has yet to bottom out
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700,000 jobs lost in the last 12 months.
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The labour force survey (LFS) data confirm that job losses did not stop during the first quarter of 2010. In the last twelve months, the number of employed fell by 696,600 people, 3.7% year-on-year, reaching a total of 18,394,200. Although the rate of decline is lower than the 6.4% recorded in the same quarter a year ago, these figures do not point towards an impending end to the decline in the job market, as ratified by data from Social Security registrations.
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The number people registered as employed with Social Security in April doesn't bode well for the prospects of the second quarter either. Although the total number of registrations rose by 53,852, the seasonally adjusted figure shows a fall of approximately 13,000. However, it should be noted that this drop is lower than those recorded in previous months, so that the data for April are less negative.
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Returning to the LFS, in the first quarter of 2010 it can be seen that job losses were once again higher among men than women, with a year-on-year fall of 5.5% and 1.3%, respectively. This is mainly due to male employment predominating in those sectors most severely hit by the crisis, namely construction and industry. In relative terms, the sector that continues to get rid of most jobs was construction, down 15.9% year-on-year. The fall in industry in the last year was also significant, namely 10.4%, affected by weak demand. On the other hand, job losses were much less severe in services, at 0.6% year-on-year.
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The public sector continues to create jobs while planning to lower its wages.
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On the other hand, the LFS confirms that employment trends are very different depending on the type of employer. While, in the first quarter of 2010, the private sector saw 274,400 jobs lost, the public workforce rose by 22,700 workers. In relative terms, the rate of job losses in the private sector therefore stood at 4.7% year-on-year whereas the total workers employed by public authorities and corporations grew by 1.9% in the last twelve months. Within this context, we should remember the plan to reduce the number of public sector workers in the period 2010-2012 contained in the Public Function Agreement between the government and the trade unions. According to this agreement, the total number of jobs offered will not exceed 15% of the replacement rate, except in Justice, Health, Education and others.
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This rise in employment in the public sector also contrasts with the commitment to speed up the fiscal consolidation plans of the Spanish government. In fact, one of the fiscal austerity measures announced last 12 May consists of reducing public sector wages by 5% on average as from June 2010, and freezing them in 2011.
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The adjustment in employment particularly affects young people on temporary contracts.
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On the other hand, total salaried employment fell by 3.7% year-on-year. The adjustment fell harder on workers with temporary contracts, with a drop of 7.6%, higher than the fall of 2.4% recorded for employees with a permanent contract. The temporary employment rate therefore fell to 24.3%. For their part, non-salaried workers have also been affected by the economic crisis, seeing a 3.4% drop in jobs in the last twelve months. The number of employers was down 4.8% year-on-year, a higher rate than the 2.2% drop recorded by the self-employed.
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With regard to the job format, data show that the decline in employment is more concentrated in full-time jobs. While this group fell by 4.4% compared with the previous year, part-time employment, which is more flexible, rose 1.2% year-on-year. However, it should be noted that jobs were also lost throughout this first quarter, 0.8% among part-time work. So the ratio of part-time employees grew by 0.08 percentage points in the first quarter, to 13.3%.
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By age group, the number of employed is falling in all segments except those of 50 to 54 years of age, the drop being sharpest among younger workers. Also of note are the appreciable increases in employment among women aged over 50, probably due to domestic work. However, employment is falling in all age groups among men, except in those aged between 35 and 39.
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The labour force halts its decline this quarter.
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According to the LFS, the estimated labour force rose for the second consecutive quarter. The falling trend of the preceding quarters has therefore been halted, as a result of discouragement due to the difficulty in finding a job, typical of recessionary periods. This increase in activity is due to the net incorporation of women, as the male share in the labour market fell. One possible explanation might be the fact that, under the current circumstances, women have a better chance of finding employment in services.
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Unemployment stands at 20.0%.
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The unemployment trend is the result of the behaviour of the labour force and employment. The larger total labour force offsets the relief provided by the fall in labour market share for the unemployment rate. However, the most important factor behind the rise in the total number of unemployed in the first quarter of 2010 has been job losses. In this period the number of unemployed rose by 286,200 to a total of 4,612,700. Consequently, the unemployment rate stood at 20.0%, the highest since the first quarter of 1995. By gender, unemployment increased more among men than women, with an unemployment rate of 20.0% and 20.2%, respectively, both rates therefore continuing to come closer together.
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In 10.1% of households, all members of working age are unemployed.
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It is worth noting that unemployment is still growing more sharply in those groups at greater risk in society. In fact, unemployment among those aged under 25 reached 40.9% last year. Similarly, the ratio of households where all the members of working age are unemployed continued to increase, standing at 10.1%. We should also add the rise in the overall number of long-term unemployed, now accounting for 38.7% of the total. This group of unemployed is particularly worrying because they tend to have more difficulty in finding a job even once the economic cycle picks up.
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The Basque Country is the autonomous community that is least affected by rising unemployment.
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With regard to geographical differences, in the last 12 months no autonomous community posted a rise in employment. In fact, in this period all saw increases in unemployment except for the Basque Country. The highest unemployment rates were to be found in the Canary Islands and Andalusia, with rates above 27%. On the opposite side of the scale, the lowest unemployment rate was recorded in the Basque Country, 10.9%.
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Lastly, the figures for registered unemployment at the employment offices in April don't point towards an end to rising unemployment in the second quarter of 2010 either. Although registered unemployment fell by 24,188 people to 4,142,425, the seasonally adjusted figure shows a rise of close to 63,000. However, the pace of growth in unemployment does seem to be slowing up as, in the month of April, the year-on-year rate was 13.7%, quite a lot lower than the 55.9% recorded in the same month a year ago.
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Prices
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First drop in core inflation in decades
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The year-on-year inflation rate rises one tenth of a percentage point in April to 1.5%.
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Inflation continued to rise slightly in April, reflecting the trends in oil prices and the euro. Consequently, the year-on-year rate of change for the consumer price index (CPI) stood at 1.5% at the end of the first four months, one tenth of a percentage point more than the previous month and 1.7 points more than twelve months earlier, when the economy was in recession.
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In effect, the main group behind this rise in inflation in April was fuels and oils, up 21.3% in the last twelve months, almost 4 percentage points more than in the previous month. In April, the greatest push upwards actually came from the quarterly revision of gas prices.
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The other volatile component of the CPI, fresh foods, also helped to boost inflation, although to a much smaller extent, going from an annual rate of change of -2.2% in March to -1.3% in April. The biggest contribution to this increase came from potatoes and chicken, although their year-on-year rates of change were still negative.
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Core inflation stands at -0.1%, its first negative figure for many decades.
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Although the CPI's movement in April was in line with what had been expected, the main surprise was provided by underlying inflation, the most stable core of inflation that excludes unprocessed foods and energy products, which fell 0.3 percentage points and stood at -0.1%. This was the first time it had seen negative figures in the last few decades. It should be noted that this drop has been influenced by a calendar effect, as Easter was earlier this year compared with 2009. However, the low level of core inflation also reveals the listlessness of consumption.
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Processed foods slowed down one tenth of a percentage point, recording a year-on-year increase of 0.5%. This drop can mostly be explained by the fall in milk prices, down 8.7% year-on-year.
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The slowdown was greater in services, whose annual rate of change fell half a point to 0.8%, its lowest for several decades. The main downward pressure came from package holidays, whose prices fell slightly compared with an increase in April 2009. Other services, such as telephony, also contributed to the slowdown.
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Inflation differential with the euro area remains slightly positive.
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The harmonized consumer price index with the European Union saw a year-on-year increase of 1.6% in April, 0.1 percentage points more than the previous month. Consequently, the inflation differential with the euro area remained slightly positive. However, the differential for core inflation was negative, by more than half a point.
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Inflation is likely to be moderate over the coming months.
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With regard to trends in inflation over the coming months, a slight increase is likely in May, whereas the effect of the higher value added tax will be noted in the second half of the year. However, weak consumption and strong competition in international markets will tend to contain prices, so that year-end inflation will be close to the upper limit for the euro area as a whole, namely 2%.
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Wholesale prices reflect the rise in commodities
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The depreciation of the euro contributes to the higher rise in import prices.
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In March, wholesale prices continued their upswing of the last few months, which in turn reflects the rising trend in most commodities in the last year. Consequently, the general index for industrial prices rose 2.4% in the last twelve months, almost 5 percentage points more than in March 2009. Most of the components recorded rises, particularly energy goods. However, consumer goods posted a slightly negative year-on-year rate of change and capital goods held their prices at the same level as last year.
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Even higher was the 7.2% year-on-year rise in import prices, affected by the depreciation of the euro over the last year. For their part, the prices of farmers' output in January continued to post an annual drop of 5.5%, as the higher decrease in animal products was offset by a smaller reduction in agricultural prices.
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Foreign sector
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The energy deficit slows up the correction of the trade imbalance
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Trade deficit stops shrinking and widens by 17% in March...
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The outbreak of the worldwide economic crisis at the end of 2008 resulted in a squeeze on trade at an international level. Spain was not spared from this situation and saw a significant fall in its exports in the following months. However, it was imports that fell more sharply, intensified by a slump in domestic demand and falling oil prices, thereby allowing a 46.7% correction in the trade deficit in 2009.
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The recovery in the global economy and the stabilization of Spain's macroeconomic situation have led to this reduction in the trade deficit coming to an end, which in March was 17.4% higher than one year ago. This increase, the second of the year, took place within a context of 21.4% and 20.6% rises year-on-year in exports and imports, respectively. Consequently, the National Accounts data place the accumulated deficit for the last four quarters at similar levels to those of 2009, slightly above 4% of GDP.
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...boosted by the energy deficit.
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But what is the reason for this change in trend? A breakdown of the trade deficit shows that the energy deficit widened by 43.5% year-on-year in March. The recovery in oil prices since the start of 2010 has increased the value of energy imports, offsetting the 19.1% improvement in the non-energy deficit. All this meant that more than 70% of March's imbalance was energy-related (60% if we consider the accumulated figures over the last twelve months). Also of note in March is the fall in vehicle exports abroad, after several months of these being the leading exported good.
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The trade deficit is expected to reduce slightly throughout 2010, in particular if we take into account the loss in value of the euro compared with the world's main currencies. In spite of the strong concentration of Spanish exports within the single currency area, this depreciation is reviving trade relations with other countries. Exports to non-euro area countries rose by 26.4%, particularly to the rest of Europe, Latin America and Asia, these being the zones with the highest increases.
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New external financing falls
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Current deficit falls to 4.8% of GDP.
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According to the National Accounts figures published by the National Institute of Statistics, the adjustment in the current deficit was lower in the first quarter of 2010. The final balance of Spanish operations accumulated over the last four quarters was 50.561 billion euros, equivalent to 4.8% of GDP. A figure that, as with the trade deficit, is not very far from the figure recorded in the previous quarter. Similarly, financing needs stood at 4.3% in the same period, four tenths of a percentage point lower than the previous period.
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The data from February's balance of payments confirm the slowdown in this adjustment. During the first two months, the accumulated current deficit fell by 15.1% compared with the same period in 2009, a significantly lower figure than those of the preceding months. In this period, the reduction in the trade deficit led the adjustment in the current imbalance, supported by a further reduction in the income balance deficit and a slight surplus in the balance of services. On the other hand, the transfer balance once again slid back for the third consecutive month.
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Foreign portfolio investment falls.
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With regard to financial flows, in the month of February there was a reduction in net portfolio investment of 18.036 billion euros. This lower portfolio investment was offset by the lower direct investment by Spain abroad, totalling 7.351 billion euros. On the other hand, short-term financing increased in February after more than a year of reductions.
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Public sector
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New austerity measures to speed up the reduction in the public deficit
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As part of an extraordinary meeting of the European Union's ministers of the economy and finance (Ecofin), held on 9 May, the Spanish minister of the Economy and Taxation, Elena Salgado, announced a new package of austerity measures to reduce the public deficit further. The aim for 2010 is therefore 9.3% of gross domestic product (GDP) and 6% of GDP for the following year, 0.5 and 1.5 points below the forecast in the 2009-2013 Stability Programme, respectively. This intensification of the effort to reduce the public deficit is necessary in order to restore the confidence of international markets.
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Cuts in public investment, reduction in civil servant wages and frozen pensions, among other adjustment measures.
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These additional measures were subsequently made more specific. The most important in terms of the volume they represent are a reduction in state public investment and the average cut of 5% in civil service wages as from June 2010, as well as the wage freeze for 2011, with a higher cut for members of the government and other senior positions.
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Also notable are the suspension of the review of pensions for 2011, except for non-contributory and minimum pensions, and the elimination of the benefit for new-born babies of 2,500 euros as from 1 January 2011. Moreover, additional savings of 1.2 billion euros are expected to come from the autonomous communities and local bodies.
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Other measures in the package are: the reduction between this year and the next of 800 million euros in official development aid, the reduction of expenditure on drugs by lowering the price of medicines excluded from the reference price system, the suppression of backdated payments of dependency benefit to the date the application was presented in the case of new applicants, and the elimination of the temporary system for partial retirement contained in Act 40/2007.
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The gradual improvement in business and some fiscal measures have led to a certain improvement in revenue.
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With regard to trends in the central government's accounts, the weakness of the economy overall continues to have a negative effect, although the gradual improvement in business and some fiscal measures taken with regard to withdrawing stimuli have helped to improve revenue to a certain extent. Consequently, in the first quarter, total non-financial income for the central government fell by 1.9% compared with the same period the previous year, but compares favourably with a drop of 13.9% for 2009 as a whole.
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The central government's net borrowing is 15% up year-on-year in the first quarter.
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Revenue from direct taxes in the period January-March totalled 20.804 billion euros, a 0.5% drop year-on-year, while the revenue from indirect taxes reflects the improved consumption and investment, posting a year-on-year rise of 2.2%. As a result of the trends in revenue and payments, on a national accounts basis, i.e. according to the rights and obligations recognised, the central government's net borrowing in the first quarter totalled 8.908 billion euros, 15.2% more than in the same period last year.
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Savings and financing
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Slight rise in household financing
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Private sector financing falls 1% in the last twelve months up to March.
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Within a context of very low interest rates and the exit from the recession, in the last few months the adjustments in private sector financing have tended to slow up. Consequently, the overall balance of financing for non-financial firms and households fell by 1.0% in March compared to a year earlier, but one tenth of a percentage point less than the previous month.
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The fall in financing to non-financial firms eased off, with the overall balance falling by 1.9% in March compared with twelve months earlier, the same rate as the month before. Loans from resident financial institutions fell by 4.2% compared with March 2009. Similarly, bond issuance picked up and rose 32.2% in the last twelve months, 2.8 points more than in the previous month. However, foreign loans stagnated compared with a year earlier.
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The squeeze in trade credit slows up.
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Trade credit, aimed at financing the working capital of firms, continued to slow up its decline, recording a year-on-year change rate of -17.9% in March, 3.7 points more than in February. This slowdown in the drop in trade credit is in line with a certain improvement in economic activity. On the other hand, financial leases, related to investment, were down 16.2% year-on-year in March, 0.3 points more than in the previous month.
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With regard to household financing, this continued to pick up slightly in March and posted a year-on-year change rate of 0.2%, its second consecutive annual growth figure. This trend can be partly explained by the record low for the 12-month Euribor in March, to which most mortgages are linked, and a certain revival in the housing market, partly due to demand being brought forward because of the rise in value added tax in July and the partial suppression of the tax deduction as from 2011. For its part, the 12-month Euribor increased very slightly in April, standing at 1.225% as its monthly average. In the first few weeks of May, the 1-year Euribor continued to rise slightly, standing at 1.26% in the fourth week of the month.
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The rest of loans to individuals continued to moderate their fall. They therefore presented a year-on-year change rate of -0.5% in March, 3 tenths of a percentage point more than in the previous month.
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The default rate eases off in March.
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On the other hand, non-performing loans took a break in March. In this month, the default rate for financial institutions as a whole fell by one tenth of a percentage point to 5.3%. Overall, this was 1.1 points above the level of a year earlier.
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Public financing slows up.
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With regard to public financing, this continued to slow up, although in March it still grew by 23.9% compared to a year earlier. It should be noted that, at the end of April, the credit rating agency Standard & Poor's downgraded the Spanish sovereign debt rating in the long term by one notch to AA and gave it a negative outlook, although the agencies Moody's and Fitch kept it at the highest rating. This downgrade led to a slight increase in risk premium for public debt and the 10-year differential with German government bonds widened slightly. At the end of the first week in May, uncertainty increased in the markets and the differential rose to 1.7 points, the highest since the euro was launched. However, after the announcement of a package of measures by the European Central Bank and the euro group to safeguard the euro area's fiscal and financial stability, the differential narrowed to 1.1 points the following week. Nonetheless, it then rose again to 1.6 points in the fourth week of May, as tensions in the debt markets did not disappear, and on 28 May the agency Fitch also downgraded Spain's sovereign debt rating by one notch.
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The risk premium for long-term sovereign debt hits its highest level since the euro was launched, but then falls.
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On the whole, total financing to resident sectors halted its decline and posted a rise of 3.3% in March compared with the same month the year before. This represents an increase of one tenth of a percentage point compared with February.
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Modest growth in bank deposits
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Yields on bank deposits rose slightly in March due to the movements by some entities to gain market share. Consequently, the average interest rate for term deposits for individuals stood at 2.19%, 15 basis points above the rate of one month earlier, although 2 basis points below that of December 2009. However, the low level of economic activity meant that the slowdown in bank deposits as a whole hardly varied, up 0.3% compared with a year earlier, 7 tenths of a percentage point less than in February. Nonetheless, the gap between credits and deposits continued to widen, yet another element in the adjustment of the Spanish economy.
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Both on-demand deposits and savings deposits moderated their rate of growth. However, savings deposits saw the greatest expansion year-on-year, namely 12.5%, showing savers' preference for liquidity given the economic uncertainty and rising unemployment. On the other hand, foreign currency accounts slowed up their decline, probably due to the expectations generated by the euro's depreciation over the last few months. In March, this balance fell by 22.1% compared with twelve months earlier but was 2.3 points less than the previous month.
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Competition for bank deposits and the volatile financial markets lead to further net withdrawals from mutual funds.
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Competition for bank deposits and the volatile financial markets continued to harm investment funds in April. Mutual fund assets fell by 2.123 billion euros in April to 158.271 billion, a year-on-year decrease of 2.3%. This monthly drop is due particularly to net withdrawals of 1.349 billion euros, basically from the most conservative categories, such as short-term fixed income and monetary funds. However, the number of mutual fund participants rose by 16,802 in April to 5,675,764, a figure that represents a 1.0% increase over December.
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Average annual yield stands at 4.1%.
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Yields suffered from the weakness of fixed income and European equity in the month, but the average annual yield stood at a significant 4.1%. All kinds of mutual funds managed to achieve annual gains, led by the emerging markets with 54.4%.
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For their part, real estate funds remained practically stable in April, with assets totalling 6.333 billion euros and 81,498 participants. However, they posted an annual drop of 4% and 14%, respectively, because of the property crisis.
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Pension funds achieve an average annual yield of 11%.
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Regarding pension funds, the balance of their assets totalled 85.325 billion euros at the end of the first quarter, with a year-on-year rise of 11.7%. Contributions during the first quarter of 2010 were 7.5% lower than those of the first quarter a year earlier, but net contributions were higher, as payouts were 20% down. The average annual yield for pension funds was 11.0%. Over the last twenty years, the average yield for pension funds has been 5.5% annually, clearly above inflation for the period.
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Revenue from insurance premiums also declined in the first quarter of 2010, 3.8% compared with a year earlier, totalling almost 15.790 billion euros. The biggest drop was in life insurance, however, namely 5.9%. Among the non-life branches, some such as health enjoyed favourable trends, with an annual increase of 4.4%. However, others more closely related to economic and industrial activity continued to be affected by the overall lethargy and their premiums fell by 8.8% year-on-year.
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Rise in financial wealth of households in 2009
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Bank deposits continued to be the main financial asset for savers in 2009, accounting for 42.2% of the total. However, their share fell by one tenth of a percentage point, growing a little less than assets as a whole.
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The equity portfolio was up 5.2%, both due to gains and also share purchases. However, there were net sales in investment funds, albeit much lower than those recorded in 2008.
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Insurance picks up in 2009 and posts its highest annual increase in household assets.
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After having recorded their first drop for the last few decades, insurance products picked up again in 2009 and posted their highest annual increase, namely 5.5%. In this way, their share of the total rose to 15.0%, 3 tenths of a percentage point more than in the previous year.
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On the other side of the household balance sheet, financial liabilities continued to slow up, posting an annual drop of 0.7%, the first for the last few decades. Most of this is made up of loans, accounting for 125.4% of gross disposable income, 2.3 points less than the previous year.
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Household debt posts its first annual fall of the last few decades in 2009.
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Lastly, the net financial wealth of families, defined as their financial assets minus their financial liabilities, grew by 9.4% in 2009 after suffering the greatest fall of the last few decades in 2008. It therefore reached 802.100 billion euros, 76.3% of the gross domestic product.
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