Is Spain pulling out of recession?

Posted: July 23, 2013 in International, Spain
Tags: , , , , , , ,

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It has been a drip drip of okay news on Spain. There’s nothing sensational; nothing yet to quieten the euro-sceptics, but enough to offer some hope.

The latest PMI for Spanish manufacturing from Markit hit 50 in June, which is the highest reading in 26 months, and suggests the sector is no longer contracting; rather it is now flat. Spain posted its first trade surplus ever in March, with exports rising 2.7 per cent, and finally Spanish unemployment fell in May, with 98,286 joining the Spanish work-force.

Okay, none of this data provides a reason for the bulls of the investment world to start charging all over the market bull rings. A reading of 50 for the PMI still suggests the economy was flat, ie not growing. Sure the balance of trade went positive, but the main reason for this was falling imports, and Spanish unemployment remains at frightening levels.

But then this week (July 23 to be precise) the latest figures on Spanish GDP were out and they gave some reason for cheer.

In Q2 the Spanish economy contracted by 0.1 per cent, after contracting 0.5 per cent in Q1 and by 0.8 per cent in Q4 last year. Year on year growth was minus 1.8 per cent.

So Spain is still in recession, but it needs only a very modest improvement to leave recession and that surely has to be celebrated.

Ben May, European economist from Capital Economics, is not so sure, however. He said: “We expect weak demand in Spain’s major export destinations to mean that the boost from the external sector will fade over the coming quarters. And with the fiscal squeeze, housing slump and private sector deleveraging set to continue for some time to come, domestic demand is likely to contract significantly further.

Based on this, we still expect GDP to fall pretty sharply next year, perhaps by as much as 1.5 per cent.” If Capital Economics is right, and the recent good(ish) news proves to be a one-off, then expect another bond crisis, and more calls for help in 2014-15.

© Investment & Business News 2013

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