The global economy in general, and the Spanish economy in particular, are experiencing turbulent times. China, the emerging markets, raw materials, the weak recovery, inflation or exchange rates are entangled with the domestic problems of each individual country. In Spain, these are focused on a political map with a lot of question marks and a worrying level of private debt, which Abengoa’s crisis has accentuated.
In the corporate world, size is also important. One of the areas still pending reform in Spain, and one of the economy’s biggest weaknesses, is the size of companies. According to studies published by groups like the Circulo de Empresarios (Circle of Entrepreneurs) or research institution Fedea, Spain’s GDP would grow 13-15% if the average size of its companies was closer to that of neighbouring countries like Germany or the UK.
China’s exports declined for the ninth consecutive month in November, falling even more than forecast (-6.8% vs -5% estimated). This data has set off alarm bells in the raw material markets and amongst producer countries, most of which are emerging economies, given that China is their main consumer on a global level. Raw material prices are at their lowest levels since the beginning of the last century.
The UK’s seven biggest banks which participated in the Bank of England (B0E)’s stress tests not only passed them, but were graded for their resilience to a range of adverse shocks, including a strong slowdown in growth in China and sharp falls in oil and raw material prices. Santander’s performance in the tests stood out, demonstrating that it is one of the lenders which is in best shape.
Although there is still no date set for the referendum on whether the UK withdraws or not from the European Union, it’s looking very much like this could take place in October 2016. Prime Minister David Cameron has said his intention is not to abandon the EU, but rather reshape its ties with Britain. But key analysts think his strategy could be risky and, in the end, go against him and jeopardise his political future.
Abengoa’s expulsion from Spain’s Ibex 35, after finding itself on the brink of bankruptcy, has provoked a tough fight amongst companies and sectors which consider they have the right to belong to this exclusive index. One of the most active sectors is real estate, now recovering from its 2008 collapse.
In the last six years, the Spanish banking sector’s return on equity (ROE) has fallen by 6.8 percentage points from 12.1% to 5.3%, mainly due to increased capital requirements. But the drop would have been even greater if it had not been for the ECB’s policies. This ROE data coincides with a complaint from Banco Popular chairman, Angel Ron, who said the regulation affecting the financial industry is “abrasive.”
Spain’s public debt stood at 1.062.472 trillion euros at the end of September, representing 99.4% of GDP, and compared with the government’s full-year 2015 target of 98.7%. But is this debt burden really so heavy, when the average cost of debt stood at 0.87% at the end of October, compared with 1.52% in December 2014?
The picture of the Spanish economy is changing thanks to the international activities of its companies, which has been increasing since the end of last year. Those firms which already operate overseas are expanding their business, but there is a risk that the uptick in domestic demand could dissuade new companies from leaving their home market.
The National Statistics Institute published last Thursday the breakdown of third quarter GDP, which has been estimated as having grown 0.8% in the quarter (3.4% year-on-year). This data once again stands out in the euro area, despite the fact it implies a deceleration from the 1% registered in the previous quarter. But key analysts believe that good short-term results should not cloud the fact that there are still areas of Spain’s economy which need to be improved.