Hallelujah, Spain is recovering


Spanish Finance Minister Luis de Guindos assures us that his country has beaten the crisis and will soon be recovering nicely. “The recession is already behind us,” he said.

I wish him the best, but this is what loan growth looks like in Spain (courtesy of Miguel Navascues at Ilusion Monetaria):

The IMF has downgraded its economic growth forecast for Spain to minus 1.6pc this year, and zero next year. The depression grinds on, and on, and on.

I nothing further to say other than to note that property prices fell 7.8pc in the second quarter from a year earlier, and are now back to 2004 levels (nominal, minus 30pc real).

Bargain hunters are emerging, but bear one thing in mind. Property Consultants RR de Acuna in Madrid say there is now an overhang of 2.2m homes either on the market, or held by banks, or in foreclosure proceedings, or still being built (presumably mostly in the less depressed areas liked the Basque country or Navarre). I can’t vouch for these figures, but the firm has been much more accurate about the true disaster in the property market than the cheerleaders in the banks, or the government.

2.2m is a lot for a country with annual market of 240,000, and a shrinking population (down 0.7pc last year as the young emigrated). Give it a decade.

The only solution to this downward spiral is a radical reflation strategy. Nominal GDP must grow at 2pc, 3pc, and ideally 5pc, instead of contracting. Unless this happens, the denominator effect will asphyxiate Spain. Yet nominal GDP reflation is impossible for souther Europe within EMU under the ECB’s current monetary regime (set for Germany).

Other than that, Spain is of course recovering. Suerte

Read @ The Telegraph

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