Spain’s Consumer Price Index (CPI) grew four tenths of a pecent to 0.3% in September from a year earlier, returning to positive territory for the first time this year. The last time inflation moved out of negative territory was in December 2015, when the rate was 0%.
The European Court of Justice’s recent ruling on the conformity of Spanish legislation with regard to compensation for temporary workers whose contracts are terminated is a serious setback for the country’s trade unions. The number of workers who may be affected by the European Court of Justice’s ruling is very high. It could have an impact on the almost 4 million temporary contract workers in the country, of which 300,000 are interim staff in Spain’s administration.
The British economy has absorbed Brexit well and one of the reasons for this soft landing is the pound’s devaluation. But the pound’s weakness is already a problem for the Eurozone, particularly for Spain, and if this is prolonged it will be an even bigger one. Furthermore if Europe is stagnating, how Spain can be doing as well as the government says? Are we living on an island?
The recovery in the construction industry in Spain over the last few months is not just a recurring theme. The sector has definitely again reached the European standards which it failed to meet in the last phase of the property boom in 2004-2007.
The hypothesis that London may cease to be the financial capital of the European Union has mobilised other capital cities in the region. Madrid is amongst the capitals which have begun to be put forward as a candidate, but its current political situation, including having a caretaker government for over 300 days, could ruin its chances.
Spanish exports managed to dodge the slowdown in world trade in the first half of the year. According to the latest data from the World Trade Organisation, exports from the 70 biggest economies (which account for 90% of global GDP) fell 5.6% to 6.4 trillion euros in the first half of 2016 from a year earlier, the lowest level since 2011. In this context, the growth rate of Spanish exports (2.4% year-on-year in the first half) has been the largest of the economies.
The figures from the Q2’16 Labour Costs Survey for Spain confirmed that salaries are stagnating. Corporate profit margins in the Spanish economy has been dependent on wage contention, but Afi’s analysts remember that they don’t just depend on wage developments. The trend in productivity and prices is also important.
The Spanish banking sector earned 28% less in the first six months of the year, it has profitability problems and has seen almost half of its stock market value wiped off in the last two years. But there are two indicators which inspire optimism in the medium-term: bad loans continue to fall and there has been a strong rise in consumer credit as well as in lending to non-property companies.
Despite the threats and risks gripping Spanish politics and the economy, it doesn’t seem that foreign investors are particularly worried for the time being. At least that is what the figures for foreign investment in Spain indicated, both in terms of direct and property investment. It looks as if venture capital disbursement in Spanish companies has hardly suffered, not due to a lack of interest but because the operations being considered were not yet mature.
There is no doubt Spain has some serious specific long-term problems, which cannot be sorted out in a couple of afternoons by a government which doesnt’ have a big enough majority or the support of the people. What I mean is that it’s not good enough that two parties outline a programme with 150 points which, after it was outvoted, they later reject as if it was a pile of empty words.