Spain in recession-everything under the sun

Spanish news dominating the scene today again. People are still talking about the bull, but let’s not forget, the MIB is down some 8% and the IBEX some 20% YTD. Spanish economy is now in recession. From Banco de Espana.

In 2012 Q1, Spanish economic activity continued on the declining path initiated in the closing months of 2011, in a setting of high financial tension. On the as-yet incomplete information available, the contraction in GDP is estimated to have been slightly higher than that in 2011 Q4, with a quarter-on-quarter rate of change of -0.4%. National demand fell once again (-0.9 pp), as has been the case over the past four years, although the decline was milder than in the preceding quarter, while the contribution of net external demand was positive once more (0.6 pp), but likewise lower than that in the previous three months. After posting rises for seven consecutive quarters in year-on-year terms, GDP fell back to a rate of -0.5% (0.3% in the previous quarter).

Employment fell once more, sharply so, posting an estimated year-on-year decline of close to 4%. And compensation per employee slowed across the economy, leading, in combination with high productivity growth, to a significant reduction in unit labour costs, prolonging the trajectory of the last eight quarters. The considerable sluggishness of domestic spending prompted a slowdown in the year-on-year rate of change of consumer prices from December to March, and the CPI stood at a 12-month growth rate of 1.9% in this latter month. Easing was more visible in the CPI excluding unprocessed food and energy, the year-on-year growth rate of which fell to 1.2%. In terms of the HICP, the inflation differential with the euro area stood in March at -0.9 pp, reflecting a reduction which was extensive to all the main HICP components.

On the international economic front, the situation on euro area markets improved somewhat compared with the stress peaks experienced in the closing months of 2011. Here, the ECB’s conventional and non-conventional monetary policy measures contributed notably, as did the approval of the second bail-out programme for Greece following the restructuring of its debt in private hands and the progress in the ongoing reform of economic governance in the euro area. However, instability returned in the opening days of April, affecting Spain and Italy acutely owing to the doubts arising over the adjustment processes under way in both countries. The indicators available suggest economic activity in the euro area stabilised – or fell off very moderately – in the opening months of 2012, following the fall in GDP in 2012 Q4; nonetheless, cyclical divergences between the member countries continued to widen. Outside the euro area there was a moderate recovery in the United States, some improvement in Japan and a gradual slowdown in activity in the emerging economies, which nevertheless remain very buoyant. Global inflation continued to slacken, although the rise in oil prices, which peaked at $125 per barrel in February to dip slightly thereafter, poses a risk.

Full presentation here.