Marzo 2013

QUAR

MARCH 2013

SPANISH

ECONOMIC

REPORT

SECRETARÍA DE ESTADO DE ECONOMÍA Y APOYO A LA EMPRESA

DIRECCIÓN GENERAL DE ANÁLISIS MACROECONÓMICO Y ECONOMÍA INTERNACIONAL

MINISTERIO DE ECONOMIA Y COMPETITIVIDAD

GOBIERNO DE ESPAÑA

The Spanish Economy: recent developments and prospects: March 2013

Elaboración y coordinación: Dirección General de Análisis Macroeconómico y Economía Internacional.

Madrid: Ministerio de Economía y Competitividad, Centro de Publicaciones, 2013

V; 26 cm.

NIPO 720-13-014-6

1. España-Situación económica

I. España. Subdirección General de Análisis Coyuntural y Previsiones Económicas

II. España. Ministerio de Economía y Competitividad. Centro de Publicaciones

338.2(460)

N.I.P.O: 720-13-014-6

Elaboración y coordinación: Dirección General de Análisis Macroeconómico y Economía Internacional

RECENT EVOLUTION OF THE ECONOMIC INDICATORS

Financial markets

In extremis agreement on the Cypriot rescue

Even though the crisis in Cyprus led to several days’ uncertainty in the European finan-cial markets, the agreement finally reached in extremis on March 25th, between the troika (IMF, ECB and the European Council and Commission) and the Cypriot government, avoided the bank-ruptcy of the country and therefore reduced the focus of tension in the markets. The agreement decrees that Cyprus closes its second largest bank (Laiki Bank) and restructures its largest bank (Bank of Cyprus), and that shareholders, bondholders and depositors (with over € 100,000) in both banks face haircuts of between 40% and 80%.

Haircuts for depositors breed mistrust among investors

The release of the rescue plan (making bank depositors pay a part) has increased inves-tors’ mistrust of the banks in the Eurozone’s most vulnerable countries, whose shares have been hit hard within the capital markets. Aiming to reduce this mistrust, different members of the Eu-ropean Commission and the ECB explained that the action in Cyprus will not be repeated in other countries, as the conditions are specific to Cyprus.

The Cypriot rescue’s conditions are not applicable to other countries

Indeed, Cyprus, with an oversized banking system in relation to its economy (bank depos-

its amount to 400% of GDP), requires a high volume of resources in order to recapitalise its banks (60% of GDP), which makes it very difficult for its government to deal with the rescue, since its debt would increase extraordinarily.

Sovereign risks are separate from banking risks

The Cypriot crisis has not spread to other countries, achieving, on this occasion, a separa-

tion between sovereign and banking risks, thanks to the ability at the last moment of the ECB to support the debt of the most vulnerable countries by means of the OMT (Outright Monetary Transactions). Therefore, since the end of February, Spain and Italy’s stock exchanges have regis-tered considerable losses (between 4% and 5%), brought about by banking securities. On the other hand, returns on public debt have decreased (approximately 35 b.p.).

Markets have been negatively influenced by the economic situation in Europe and the United

States…

The political instability in Italy, as a result of the difficulties in forming a government, and

the downturn of the European economy, plus the weak recovery in the United States, are other factors that have negatively affected the financial markets during the past weeks. In these condi-tions only the extremely expansive monetary policies pursued by the main central banks provide a stimulus for economic activity.

…and boosted by expansive monetary policies

Indeed, in the meeting held by the Governing Council of the European Central Bank

(ECB) on April 4th, intervention interest rates were not modified, maintaining the main refinanc-

4 Ministry of the Economy and Competitivennes / Summary of Economic Indicators / March 2013

ing operations rate at 0.75% and the interest rates on lending and deposits at 1.50% and 0.00%, respectively. In the press conference that followed the meeting, the President of the ECB declared the weakness of economic growth in the Eurozone and the appearance of risks that could slow down the expected take off during the second half of the year, highlighting that the Institution is prepared to adopt new stimuli measures in the coming months, if necessary.

Also, on April 4th, the Monetary Policy Committee of the Bank of England (BoE) de-cided to keep the base rate (“Official Bank Rate”) at 0.5% (in force since March 5th, 2009) and to continue with the assets purchase programme (quantitative easing) to reactivate lending in the economy, which currently stands at £ 375 billion (€ 465 billion). According to the latest data, the GDP in the fourth quarter of 2012 decreased again, and February’s rate of inflation stood at 2.8%.

The most significant result took place in the meeting held by the Bank of Japan (BoJ) on April 3rd and 4th, the first meeting with its new Governor (Haruhiko Kuroda). At this meeting it was decided to maintain the official interest rate at between 0% and 0.1% (range set on October 5th, 2010) and monetary flexibility measures were announced, aimed at ending the persistent de-flation of the last ten years. With the objective of achieving 2% inflation in two years, the BoJ has decided to implement a series of monetary expansion measures (both quantitative and qualitative) to influence the markets’ expectations. Among these measures are money market operations to annually increase the monetary base to between ¥ 60 and 70 trillion (€ 491 and 573 billion) per year, in order to double it in the coming two years. Moreover, the monetary base (legal money in circulation plus the reserves in the central bank) has become the intermediate target of the BoJ’s monetary policy instead of interest rates. It was also decided to run a sovereign bonds and nego-tiable funds repurchase (ETFs and REITs) programme that significantly increases the BoJ’s port-folio volume and duration.

Interest rates expected to decline

In the Eurozone’s interbank market interest rates’ downturn expectations prevail.

Therefore, at the end of March the 12 month Euribor stood at 0.547%, 1 b.p. less compared to the end of February. The average for March was 0.545%, 5 b.p. lower than the average 0.594% rec-orded in February. During the first week of April, the rates’ decrease was maintained at a steady level. Therefore, on April 5th the 12 month Euribor stood at 0.534%.

G1. MONETARY AND FINANCIAL INDICATORS (1)

0

2

4

6

8

04 05 06 07 08 09 10 11 12 13

Intervention rate

12 month Euribor rate

10 year government bond yield

INTEREST RATES

60

80

100

120

140

04 05 06 07 08 09 10 11 12 13

Dollar/Euro

Yen/Euro

EURO EXCHANGE RATEJanuary 2004 = 100

500

750

1.000

1.250

1.500

1.750

04 05 06 07 08 09 10 11 12 13

MADRID STOCK EXCHANGE31/12/85 = 100

(1) Daily data. Source: ECB, Banco de España and Bolsa de Madrid.

Recent Evolution of the Economic Indicators 5

Decreases in interest rates’ in the Eurozone countries’ debts

In the secondary debt market, the reduction in risk aversion of investors, as a result of

the Cypriot agreement, the calm reopening of its banks and the positive results of the Spanish treasury’s recent auctions have benefitted peripheral debt, decreasing returns and, to a lesser ex-tent, risk premiums, since the German debt, which has not lost its status as a safe-haven invest-ment, also registered decreases in its interest rates. The interest rate of the ten-year Spanish bond stood at 4.76%, 33 b.p. less on April 5th compared to the end of February, whilst the German bond stood at 1.22%, registering a decrease of 24 b.p. during that same period. So, the Spanish – German differential decreased 9 b.p. to 354 b.p. The Spanish – Italian differential, which stood at 35 b.p. at the end of February, increased to 38 b.p. on April 5th.

T 1. Public debt yields and differentials

(in % and basis points)

Countries

Yields (%) Differentials with Germany (basis points)

Dec-31-12 Feb-28-13 Apr-05-13 Variation in

spreads Dec-31-12 Feb-28-13 Apr-05-13 Variation in

spreads

(1) (2) (3) Monthly (3)-(2)

Annual (3)-(1) (4) (5) (6)

Monthly (6)-(5)

Annual (6)-(4)

Germany 1.32 1.46 1.22 -24 -10

Finland 1.51 1.68 1.40 -28 -11 19 22 18 -4 -1

Austria 1.75 1.82 1.48 -34 -27 43 36 26 -10 -17

Holland 1.50 1.81 1.61 -20 11 18 35 39 4 21

France 1.99 2.17 1.76 -41 -23 67 71 54 -17 -13

Belgium 2.05 2.35 1.97 -38 -8 73 89 75 -14 2

Ireland 4.53 3.76 4.06 30 -47 321 230 284 54 -37

Italy 4.53 4.74 4.38 -36 -15 321 328 316 -12 -5

Spain 5.31 5.09 4.76 -33 -55 399 363 354 -9 -45

Portugal 7.00 6.36 6.39 3 -61 568 490 517 27 -51

Greece 11.84 10.95 12.17 122 33 1052 949 1095 146 43

Source: Financial Times.

Sharp fall of the financial sector in the Eurozone’s stock exchanges

In the context of expansive monetary policies and positive macroeconomic data in the United States, the stock exchanges trended upward in the first half of March. On March 14th, the IBEX 35 and the Eurostoxx 50 accumulated a profit from the beginning of the month of 5.2% and 4.2%, respectively. The crisis in Cyprus and certain negative economic indicators in France and Germa-ny, in a slacker market due to the Easter holidays, resulted in a very negative second half of the month for the European stock exchanges and, especially, for its financial sector. One of the stock exchanges that suffered the most was the Spanish stock exchange, due to the high profile of this sector in the IBEX 35. The United States’ stock exchanges have been isolated from the Cypriot crisis and have performed better than the European ones. Finally, the Japanese stock exchanges are highly dependent on the yen’s evolution. So far this year, the sharp depreciation of this cur-rency against the dollar (14%) will boost the country’s exports and has increased the price of listed securities.


T 2. International stock exchange

Countries Index Level

Apr-05-13

% Variation

Feb-28-13 Dec-31-12

Germany DAX 7,658.75 -1.1 0.6

France CAC 40 3,663.48 -1.6 0.6

Italy FTSE MIB 15,250.42 -4.2 -6.3

Spain IBEX 7,798.40 -5.2 -4.5

Eurozone EUROSTOXX 50 2,585.28 -1.8 -1.9

United Kingdon FTSE 100 6,249.78 -1.7 6.0

United States DOW JONES 1,553.28 2.5 8.9

Japan NIKKEI 225 12,833.64 11.0 23.5

Source: Bolsa de Madrid, Infobolsa, Stoxx and Financial Times.

Depreciation of the euro against the dollar in March

The difficulties which the Cypriot crisis’ management has gone through have resulted in a depreciation of the euro against the dollar throughout the month of March. During the first days of April, as a consequence of fewer jobs being created in the United States, the European currency recovered positions, ending the first week of the month at $ 1.2944, ¥ 129.49 and £ 0.8491, which, since the end of February, represented euro depreciations of 1.4% and 1.6% against the dollar and the pound, respectively, whilst it rose by 7% against the Japanese currency. In nominal effective terms, the euro depreciated by 0.5% during this period.

The M3 monetary aggregate slows down in February

Regarding monetary and credit aggregates in the Eurozone, the broad M3 aggregate’s

growth slowed down in February by four tenths, to 3.1% y-o-y, from 3.5% in January, because negotiable instruments stress its fall by 3 p.p. (down to -9.1%) and term deposits slow its growth down by 0.9 p.p. (down to 0.8%), whilst the most liquid component (M1), boosted by overnight deposits (that increase by 8.2%, after the 7.7% registered in January), advance by 7%, compared to 6.6% registered in January.

T 3. Eurozone monetary aggregates

Monetary aggregates

February 2013 balance

(Billions €)

% Year-on-year variation

December 2012

January 2013

February 2013

1. Currency in circulation 863 2.3 1.5 1.4

2. Overnight deposits 4,310 7.4 7.7 8.2

M1 (= 1 + 2) 5,173 6.5 6.6 7.0

3. Other short-term deposits (= 3.1. + 3.2.) 3,888 2.0 1.7 0.8

3.1. Term deposits up to two years 1,791 -2.2 -3.0 -4.8

3.2. Deposits redeemable at notice up to three months 2,097 5.9 6.2 6.1

M2 (= M1 + 3) 9,061 4.5 4.4 4.3

4. Marketable instruments (= 4.1.+ 4.2.+4.3.) 746 -6.9 -6.1 -9.1

4.1. Repurchase agreements 125 -11.4 -8.2 -10.2

4.2. Money market funds shares/units 468 -4.4 -4.0 -2.6

4.3. Securities other than shares up to two years 154 -10.1 -9.6 -23.3

M3 (= M2 + 4) 9,808 3.5 3.5 3.1

Source: European Central Bank.


Whilst personal loans stabilise growth, business loans stress the decrease

The main counterpart to M3 , the financing for the private sector in the Eurozone, high-lighted its y-o-y decrease by 1 tenth in February (-1.2%, compared to the -1.1% registered in Jan-uary), mainly as a result of the fact that bank loans to non-financial corporations (that account for 35% of the total amount of financing for the private sector) accelerated its negative rate by one tenth, to -2.6%, whilst loans to households (40% of the total financing) maintained growth at 0.5%.

T.4. Financing of private sector in the Eurozone (1)

February 2013 Balance

(Billions €)

Year-on-year variations December

2012 January 2013

February 2013

Credit to the private sector 13,013 -0.8 -1.1 -1.2

Loans 10,825 -0.7 -0.9 -0.9

Households

5,249 0.5 0.5 0.5

House purchases 3,839 1.3 1.4 1.4

Consumer credit 597 -2.9 -3.1 -3.3

Other lending 814 -0.7 -1.1 -1.1

Non-financial corporations 4,513 -2.3 -2.5 -2.6

Insurance companies & pension funds 93 -2.2 7.3 9.4

Other financial intermediaries 971 1.0 -1.4 -0.5

Securities other than shares 1,409 -4.7 -6.5 -6.8

Shares and other equities 780 5.3 6.1 5.7

(1) Assets of the Monetary Financial Institutions (MFI). Source: European Central Bank.

In Spain, the balance of private sector financing accentuated its decrease in February Finally, according to the financing to the private non-financial sectors in Spain data, published by the Bank of Spain, financing to the private sector fell by 5.8% y-o-y in February, 4 tenths more than in January. The financing received by companies particularly contributed to this acceleration of the financing decrease (with a fall of 7.1% from the 6.5% registered in January), whilst personal loans only increased by one tenth, to -3.9% from -3.8% registered in January.

T.5. Financing of non-financial sectors residents in Spain

February 2013 Balance

(Billions €)

% Year-on-year variation

December 2012

January 2013

February 2013

Non-financial corporations and

Households 1,944 -5.2 -5.4 -5.8

Non-financial corporations 1,121 -6.2 -6.5 -7.1

Bank loans 713 -8.0 -8.5 -8.5

Securities(1)

73 12.3 13.6 7.3

External loans 335 -5.5 -5.5 -6.7

Households 823 -3.7 -3.8 -3.9

Bank loans. Housing 635 -3.5 -3.6 -3.7

Bank loans. Other 185 -4.6 -4.6 -4.8

External loans 3 10.2 11.5 11.9

General Government 914 20.0 19.3 19.6

Total financing 2,858 1.3 1.1 0.9

(1) Other than shares. Source: Banco de España.


The Spanish Economy

Demand and Output

Current indicators confirm the contraction in the fourth quarter of 2012

Current Spanish economy indicators confirm a contractive trend in the last quarter of

2012, in a context of weakening activity due to shrinking domestic demand as a result of fiscal adjustment, a continued deterioration of the labour market and persistent financial tensions.

According to estimates published by the National Statistics Institute (INE), Spain’s GDP

contracted by 0.7% q-o-q in the fourth quarter of 2012, i.e. 0.4 pp. more than in the previous quar-ter. Output fell 1.8% in y-o-y terms during that period. This result is basically due to the more negative contribution from national demand, partially offset by the positive effect from external demand. Based on these results, in 2012 this rate would be -1.37%.

In this context, the IMF updated its macroeconomic projections for the Spanish economy

published last October, raising the projected real GDP change by 0.1 pp. for 2012 to -1.4%, and lowering it by 0.2 pp. for 2013 to 1.5%. This organization projected a return to positive rates in 2014, anticipating an output growth rate of 0.8%.

National demand continues its downward trend

On the expenditure side, the principal components of national demand confirmed a con-

tractive profile in the fourth quarter of last year.

Private consumption continues to contract …

Most indicators related to private consumption in the fourth quarter show a continued weakening, constrained among other things, by the fiscal adjustment (reversal of the spending boom prior to the rise in VAT rates in September and the temporary suppression of the extra De-cember payment to public employees) and the deteriorated labour market.

Among quantitative indicators, composite private consumption, prepared by the Ministry

of the Economy and Competitiveness, steepened its fall by 0.1 pp. q-o-q in the fourth quarter to 1.2%. This deterioration is justified mainly by the unfavourable evolution of three of its compo-nents: apparent consumption of consumer goods, large company sales of consumer goods and services, and the retail sales index.

The y-o-y drop in apparent consumption of consumer goods intensified in the fourth quar-

ter to -9.7% (with information until November), against the -8.3% noted in the preceding quarter, and large companies´ domestic sales of consumer goods and services, with deflated, calendar ad-justed and fixed sample data, steepened the y-o-y drop recorded in November by almost one point, to -9.2%. On the other hand, the fall in the retail sales index (not including gas stations), with deflated and calendar adjusted data, sharpened by almost three points in December to end at -10.6% y-o-y. With this drop, the indicator closed the fourth quarter with an average annual drop of 9.3%, more than three points higher than in the previous quarter.

However some spending indicators showed a less unfavourable performance, such as ve-

hicle registrations which, according to ANFAC data, cut in January their y-o-y fall by thirteen and a half points over the previous month, to end with a y-o-y fall of 9.5%.


-50

-35

-20

-5

6

10

14

18

2007 2008 2009 2010 2011 2012 2013

Saving rate (e.right.)

Confidence (s. left.)

G 2. SAVING RATE AND CONSUMER CONFIDENCE % of GDI (mobile year) and balances

0

2

4

6

8

2010 2011 2012

R1. Return on net assets (before taxes)

R2. Interest on borrowed funds/interest-bearing borrowing

R1-R2. Return on net assets-cost of debt

Source: BE (Central Balance Quarterly).

G 3. CBQ. PROFIT RATIOS (%)

… although household confidence rises in January

Opinion indicators show an improvement in confidence in the first month of 2013. The

consumer confidence indicator, prepared by the European Commission, rose 7.5 points over De-cember to end at -32.5, as a result of a rise in all its elements, especially work and the expected general economic situation. The January consumer confidence index, on the other hand, prepared by the Sociological Research Centre, rose almost eleven and a half points as a result of the im-provement in two of its components, current situation and expectations.

The savings rate continues to fall …

According to the Quarterly Non-financial Accounts for Institutional Sectors, gross dispos-able income (GDI) for households fell 1.6% in the third quarter of 2012, in comparison with the 3.9% fall noted in the second quarter. This setback is justified by the fall in compensation of em-ployees (5.4% y-o-y) and the rise in current taxes on income and wealth (1.8%), which have not been offset by the advances in net current transfers received (34.3%) and non-labour income (0.5%).

The drop in gross disposable income together with the rise in final consumption expendi-

ture for households at current prices (0.6%) is reflected in a drop of 26.8% in gross household savings over the third quarter 2011 rate, with the savings rate ending at 7.6% of GDI, 2.6 points below the previous year.

Household savings and the positive balance in net capital transfers received (605 million

euros) allowed to finance household investment, but this was 11.6% below the amount shown a year earlier. As a result NPISH and households showed a lending capacity in the third quarter of 2012 of 0.7% of quarterly GDP, more than one point less than in the third quarter of 2011.

… while the deleveraging process begun in 2010 continues

According to the Financial Accounts, household and NPISH liabilities shrank 3% y-o-y in the third quarter of 2012, while financial assets shrank 2.4% with respect to a year earlier, result-ing in a drop of 1.5% in net household financial wealth. By instruments, on the asset side, securi-ties other than shares and technical insurance reserves gained weight in the third quarter of 2012, while shares and other equity and other accounts receivable lost ground. On the liabilities side, loans became less important while other accounts payable increased. Households continue the


deleveraging process begun in mid-2010, with the ratio debt-GDP moving from 86.1% in the third-quarter of 2011 to 80% in the same quarter of 2012.

In December, credit conditions continued to be restrictive for households, judging by fi-

nancing to households resident in Spain, which showed a slight steepening of the y-o-y fall, to 3.6% (3.5% in November).

The contraction in capital investment indicators eased …

The latest indicators published on capital investment show positive signs within a gener-ally contractive context, judging by the equipment investment composite indicator, which noted a q-o-q fall of 0.9% in October-December, 0.1 pp. below that of July-September. Domestic sales of equipment and software in large companies, on the other hand, noted a y-o-y variation of -11.5% in November, more than six points higher than the amount recorded the previous month. Truck registrations similarly closed the last quarter of the year with a y-o-y drop of 26.3%, which was nevertheless 1.6 points less than the drop seen in the previous quarter.

In less rosy terms, the January Industrial climate in investment goods, according to the

Current Industrial Survey, fell almost two points over the previous month, to -14%, and apparent consumption of capital goods recorded a y-o-y drop of 6.9% in the fourth quarter of December (with information until November), 0.1 pp. up on the previous quarter. Utilization of production capacity similarly ended the first quarter of 2013 at 68.7% (January data), almost four percentage points below the previous quarter, the lowest level since the first quarter of 2010.

On the other hand, the Harmonized Business Confidence Index published by the INE lost

4.1 points in the first quarter of 2013 over the fourth quarter of 2012, to stand at 100 points. This result, reflecting a further decline in business confidence, is due to the worsening of its two com-ponents, the overall context referring to the fourth quarter of 2012 and overall expectations for the first quarter of 2013.

… while the lending capacity of non-financial companies rises ...

According to the Non-Financial Quarterly Accounts for Institutional Sectors, disposable

income for non-financial companies rose by 11.8% y-o-y in the third quarter of 2012, mainly due to the increase in gross operating surplus (6%) and the drop in corporation tax paid by companies (9.3%), which compensated the 0.9% rise in the balance of net property income paid. Business disposable income, together with net capital transfers received (2.15 billion euros), was enough to finance the volume of the sector investment, with companies presenting a lending capacity equivalent to 3.3% of quarterly GDP, 1.5 points more than in the same quarter the previous year.

… and they continue to reduce their debt

The Financial Accounts reflected an increase in the balance of net financial operations of

non-financial companies, from -2.35 billion euros registered in the third quarter of 2011 to 17.5 billion euros in the same quarter of 2012. This increase is explained by a rise in the net amortiza-tion of liabilities (from 1.77 billion in the third quarter last year to 22.51 billion in the same period of 2012), which exceeded the drop in net acquisition of financial assets (-5.01 billion euros against the -4.13 billion one year before).

Accumulated lending capacity of companies during the last four quarters and revaluations

deriving mainly from the depreciation of liabilities in the form of shares and other equity, allowed


a reduction of 5.7% in net liabilities of non-financial companies over the third quarter of 2011. Company debt, in the form of securities other than shares and loans (excluding financial deriva-tives) therefore continued to drop in the third quarter, to end at 131.7% of GDP, 4.5 points below the number registered one year before.

Credit conditions continue to tighten

Information referring to financing conditions point to a continuance of company financing

restrictions. The fall in financing to companies resident in Spain worsened in December, ending at 5.2% (4.7% in November). Part of this reduction is due to the transfer of bank loans to the “SAREB”, which the Bank of Spain estimates at around 54 billion euros. This transfer does not imply any real variation in financing flows to companies, rather a mere accounting reclassifica-tion.

-30

-20

-10

0

10

20

2008 2009 2010 2011 2012 2013

Domestic sales

Imports

Exports

Source: AEAT.

G 4. LARGE FIRMS: SALES AND FOREIGN TRADEyear-on-year growth rate in % (cad)

25

35

45

55

2008 2009 2010 2011 2012 2013

Industry

Services

Source: NTC RESEARCH LTD-REUTERS.

G 5. PMI INDICES: INDUSTRY AND SERVICES

The contraction in construction investment worsens

The weakness in construction investments noted in previous months worsened due to loss of confidence in market players, tightening credit conditions for households, the continued deterioration of the labour market and lower public investment. These factors basically counter-acted the expansive effect of the drop in prices on dwellings demand.

The quantitative indicators, like the construction investment composite indicator and the

housing investment composite indicator in the fourth quarter of 2012 noted q-o-q rates that were respectively 0.6 and 1.2 points below the third quarter rates, at -2.3% and -3%. This deterioration is justified mainly by the worsening of its three partial components: cement apparent consump-tion, new construction permits and the construction confidence indicator.

Housing purchases turn downwards in November after rising for three consecutive months ...

Housing purchases took a downturn in November to end with a y-o-y drop of 6.1% and

ending a rising trend of three consecutive months (+12.8% in October), consistent with composite indicators. The result was due to both the setback in new housing purchases (-6.3% against 14.7% in October) and used housing purchases (-5.9% against 11.1% the previous month). The year-on-year drop in household financing to acquire housing steepened by 0.1 pp. to -3.6%, and the num-


ber of mortgages on housing plunged by more than seventeen points y-o-y over October, to end at -31.6%.

… while housing prices continue to adjust

The demand for dwellings remained weak, despite the adjustment in housing prices. The year-on-year drop in the general housing price index and the average price per square metre of unsubsidised housing in particular worsened by half a point in the fourth quarter of the year ac-cording to the Ministry of Development, ending with drops of 9.8% and 10%, respectively. The latter was due to the drop in the average price per square metre of used housing (-10.4%, down by 0.8 pp. below the previous quarter), which could not be offset by the slight descent (0.4 pp. in the corresponding drop in new housing (-7.8% y-o-y). This is the seventeenth consecutive quarter with a y-o-y drop in the average price per square metre of unsubsidised housing. The downward trend in industrial activity steepens in the last months of the year …

On the supply side, the most recent information on industrial activity generally shows a

downward trend, with some exceptions among qualitative indicators. The composite industrial activity indicator showed a q-o-q variation of -0.9% in the fourth quarter of 2012, down by 0.2 pp. on the previous quarter. This is due mainly to the worsening of three of its partial components over the preceding period: domestic industrial sector sales in large companies, industrial product imports and the Industrial Production Index (IPI).

The IPI extended the consecutive drops with a y-o-y drop of 7.2% in November with cal-endar-adjusted data, more than four points over the previous month. This was the result of the tighter contraction of non-energy groups and the downward turn in energy. As a result, capital goods recorded the steepest drop (-12.8% against -6.2% the previous month) followed by inter-mediate goods (-7.3% against -5.2%), consumer goods (-6.4% against -2.5% the previous month) and, finally, energy (-1.3% against 4.3% in November).

… and most leading indicators point to a prolongation of this contraction

The drop in industry new orders and business turnover on the other hand, the leading ac-

tivity indicators for the sector, steepened their rates of decline in November, registering year-on-year rates of -1.5%, the first one, and -4% the second, almost one and a half and almost three points below the previous month, respectively.

Concerning qualitative indicators, industry confidence, as published by the European Commission, slid 2.6 points in January over the previous month, attributed to its three partial components, especially expected production. The manufacturing industry’s PMI rose one and a half points in January to stand at 46.1. As for employment in the sector, Social Security affilia-tions recorded a y-o-y fall of 6%, more than 0.1 pp. higher than in the preceding month.

Construction remained immersed in adjustment, but with signs of moderation

Available information on construction activity shows that the contraction continues, but

with certain signs of moderation judging by the construction activity composite indicator, which noted a q-o-q variation of practically zero in the fourth quarter, after receding 0.7% in the previ-ous quarter. The same trend was seen in the construction industry production index, which in No-vember noted a y-o-y advance of 10.3%, more than six points above October due to the rally in


civil works and, to a lesser degree, to the improvement in the building component. Cement appar-ent consumption (domestic sales plus imports minus exports, by volume) closed the last quarter of the year with a sharp y-o-y drop, -31.3%, although still more than three points less than in the third quarter.

The drop in leading indicators and sector confidence slows

The Construction confidence indicator, which improved by more than nineteen points in

January to register a balance of -41.6, was more favourable. The improvement in employment ex-pectations and, to a lesser degree, in the orders on the books, explain the marked recovery of this indicator.

Leading indicators show signs in line with this performance. Floorage approvals trimmed

more than twenty two and a half points off its y-o-y rate in November to end at 17.6%. This be-haviour is explained mainly by the rally in the non-residential segment, which rose by 20.5% after the fall of 32.1% the previous month. The residential segment, for its part, registered a y-o-y set-back of 31%, almost thirteen points below that for October.

Finally, the drop in employment remained stable, judging by the number of Social Secu-rity affiliates in construction, which registered a y-o-y rate of -16% in January, the same as in the previous month.

The pace of advance moderates in service sector activity indicators …

The most recent information on the service sector’s activity reflects a lessening of the

expansive trend shown in the central months of last year. The services activity composite indica-tor dipped in the fourth quarter of 2012 to -0.3% q-o-q, after rising for fourteen consecutive quar-ters (+0.1 in the previous quarter). November Services sector business turnover index, with calen-dar adjusted data, followed a similar trend, receding y-o-y by 7.8%, almost one and a half points more than in the previous month, with commerce noting the steepest drop, 8% (6.1% in October). The other services subsector slid 7.6%, i.e. 0.6 pp. more than in the previous month.

… while qualitative indicators show mixed signals

Some qualitative indicators showed a more favourable evolution at the end of last year.

Services PMI rose in December and again in January, accumulating more than four points over the previous month to end at 47, the highest score since last February. The services confidence indica-tor, on the other hand, improved more than two points in January over the previous month to end at -23.8, driven by the improvement in components related to present demand and the business situation. However confidence in the retail sales sector slid 2.3 points in January over December to end at -20.3, affected by the worsening of the future business situation component.

In terms of jobs the number of services sector affiliates continued to fall in January to

-3.1% y-o-y, down by 0.1 pp. compared to the drop recorded in December.

Tourism takes a downward turn in the last months of 2012

The main tourism indicators showed negative y-o-y rates in the fourth quarter of 2012, due

in part to a base effect motivated by their strength at the end of 2011 as a result of geopolitical instability in some competing countries in the Eastern Mediterranean. Thus the fourth quarter saw the arrival of 1.8% fewer tourists to Spain than one year before, against the increase of 4.8% in


the previous quarter. The spending of tourists visiting our country followed the same trend, with a reduction of 0.3% compared to a year earlier, against the 9% increase noted in the third quarter, and overnight hotel stays registering an average annual drop of 4.4% at the end of the fourth quar-ter, more than three points over the previous quarter.

December passenger air traffic extended the downward trend begun in January, 2012, ending with a y-o-y decline of 10.3%, 0.4 pp. higher than in November. This result was a conse-quence of the contraction in international air traffic, with a y-o-y rate of -4.5% (-1.7% the previ-ous month) which was not offset by the more moderate drop in domestic traffic, which slid 18.2% y-o-y in December against the 21% in November.

Prices

CPI moderates during the first quarter of this year

The Consumer Price Index (CPI) increased by 0.2% in February compared to the previ-ous month and its y-o-y variation rate increased one tenth, to 2.8%. This slight acceleration re-flected the rise of the price of energy products and of Non-Energy Industrial Goods (BINES), par-tially offset by the moderation of fresh food prices. On the other hand, processed foods and ser-vices showed neutral development since they maintained their inflation rates.

Core inflation also increased by one tenth, to 2.3%, as a result of the BINES’ price rise, es-

pecially medicines’ and other pharmaceutical products. In turn, inflation, which does not take into account energy goods and the total for food, stood at 1.9%, for the third consecutive month.

-3

0

3

6

2009 2010 2011 2012 2013

CPI (%)

Proces. food

Unproces. food

Non-ener.ind.goods

Energy

Services

Sources: INE and SGACPE.

G 6. CPI GROWTH CONTRIBUTION BY SECTORSIn percentage points

-3

0

3

6

2009 2010 2011 2012 2013

Core

Services

Non-energy industrial goods

Processed food

Source: National Statistic Institute (INE)

G 7. CORE INFLATION: BREAKDOWN Year-on-year change in %

The CPI’s leading March indicator, published by the INE, predicts a decrease of its annual

rate, to 2.4%, which implies a decrease in inflation of half a point during the first quarter. Pro-spects for the rest of the year point to a declining inflation, as a result of the expected discounts in the different rising stages that took place during the second half of last year, to which other factors such as the continuity of the weak demand of final consumption are added.

Energy prices increased in line with oil prices

Energy good’s prices recorded a m-o-m increase of 1.7% in February, higher than the one

registered a year earlier (1.1%), mainly due to the evolution of its main components, petrol and


fuels and gas, which showed a monthly growth of 2.3%, compared to 1.5% documented in Febru-ary of 2012. The y-o-y variation rate of energy goods increased by 0.6 p.p., to 5.9%, and that of petrol and fuel increased 0.9 p.p., to 5.1%. In this context, it should be noted that the oil price in euros was higher in February than in January, by 2.3%, even though in March it experienced a slight fall.

Food inflation falls but is still high

The prices of all food groups fell by 0.2% compared to January and in comparison to the

slight increase recorded (0.1%) in the same month of the previous year; and the y-o-y figure fell from 3.8% to 3.5%, although it remains significantly above the CPI’s average, and as a secondary inflationary group, following energy. This decrease is due, exclusively, to non-processed foods, which reversed the bullish trend of the last months, decreasing its annual rate from 4.3% to 3.1%. On the other hand, processed foods’ prices experienced a monthly increase of 0.3%, barely ex-ceeding the previous year one; therefore they have maintained their annual rate at 3.6%. With y-o-y rates clearly exceeding the average rate, the following continue to stand out: oils and fats (19.1%), potatoes and potato products (18.2%), eggs (14.5%) and tobacco (9.9%). On the other hand, only three groups remained negative and of minimal importance in February: lamb, fresh vegetables and dairy products.

BINES’ prices maintain their prolonged moderation

BINES’ prices recorded a m-o-m decrease of 0.3%, slightly lower than the one experi-enced a year ago (0.4%), and its y-o-y rate increased one tenth, to 1.4%. In this group clothing and footwear must be mentioned, which decreased by 1.8% during the month (almost the same as in February 2012) and whose annual rate stood at -0.1% in January, the monthly decrease is of a sea-sonal nature and a response to the winter sales. Vehicles’ price moderation must be highlighted too, with an annual drop of 2.2%, which to a great extent is in response to the effect of the Effi-cient Vehicle Incentives Programme (PIVE). Medicines and pharmaceutical products continued to be the most inflationary item, and in February accelerated again, reaching an annual rate of 48.6%, approx. 4 p.p. more than in the previous month.

Services’ prices showed a m-o-m advance in February of 0.2%, slightly higher than the one recorded in the previous year. Its annual rate stood at 2.2%, for the third consecutive month. Tourism, catering and hotels showed a monthly growth of 0.3% (0.1% the previous year), increas-ing their annual rate one tenth, to 0.9%; as a result of the influence of package tour prices, with a monthly advance of 2.4% compared to 0.9% in the previous year, and probably as a result of the special pricing offers for the Easter holidays at the end of March, and which cannot be compared to last year as Easter was celebrated in April. Inflationary pressures can also be seen in the price of urban and long-distance public transport, offset by the lower pressure of the prices of other ser-vices.

EMU inflation decreased once again, to 1.8%…

In February, the Harmonised Monetary Union Index of Consumer Prices (MUICP) decreased its y-o-y figure by two tenths, as in January, to 1.8%, just as Eurostat had predicted. For components, y-o-y rates remained stable in energy (3.9%) and BINES (0.8%), and moderated in the remaining large groups, especially in food and in services. Core inflation decreased once again by another tenth, to 1.4%, a decline that exclusively responded to the drop cited in services.

… and the Spanish differential broadened in February to 1.1 p.p. but will decrease in March


The annual rate of the Spanish harmonised CPI (IPCAE) rose in February to 2.9%, one

tenth more than in January, and the inflation differential, unfavourable for Spain since August 2012, increased from 0.8 to 1.1 p.p. Spanish harmonised core inflation also rose one tenth, to 2.4%, therefore, by having decreased by one tenth in the EMU, the unfavourable differential com-pared to the EMU core inflation increased by two tenths, to 1 p.p. Per sectors of origin, the differ-ential was only favourable for Spain in non-processed foods (-0.5 p.p.), and the highest unfavour-able differential was recorded in energy (2 p.p.), where it has been widening during the last two years due to the highest increases in Spanish electricity prices. With advance data of provisional harmonised indices for March, the inflation differential would decrease two tenths, to 0.9 p.p., as a result of decreasing the rate of the Spanish harmonized CPI by three tenths (to 2.6%) and by only one the rate corresponding to the total of the EMU (to 1.7%).

Industrial prices consolidate their annual rate below that of the CPI

The Industrial Price Index (IPRI) increased by 0.2% in February, and its y-o-y variation rate stood at 2.1%, half percentage point less than in the previous month, continuing the decreas-ing path started more than one year ago. In turn, the IPRI without energy also increased by 0.1% during the month, and decreased its annual rate by four tenths, to 2.3%. All the important compo-nents have contributed to this slowing down of the IPRI, although energy and intermediate goods components have slowed down more sharply. Energy prices decreased their annual rate from 2.6% recorded last January to 1.6%, whilst intermediate goods prices decreased their rate to 1.8%, seven tenths less than in January.

-2

0

2

4

2009 2010 2011 2012 2013

Spain

EMU

Differential (p.p.)

(*) March 2013 data are provisional.Source: Eurostat.

G 8. HARMONIZED CPI (*)Year-on-year rate %

-10

-5

0

5

10

2009 2010 2011 2012 2013

All items

Non-energy

Source: INE.

G 9. INDUSTRIAL PRODUCER PRICES (PPI)Year-on-year change in %

Labour market

Affiliations slow down the annual fall rate in the first months of the year

According to the information available from the monthly labour indicators, Social Security affilia-tions and unemployment recorded for the first three months of the year, the decrease in employ-ment is moderating and the increase in unemployment rate is slowing down. In turn, the last avail-able labour cost indicators are strengthening the moderation that has been recorded in previous years.

The monthly average of affiliates recorded with Social Security in March came to 16,181,300, representing a m-o-m increase of 30,500 affiliations, significantly higher than the fig-


ure recorded a year ago (5,400). With seasonally adjusted figures a m-o-m decrease of 27,200, -0.2% occurs, equal to that seen in February. Compared to the same month of the previous year, affiliation decreased in the past by 721,300 affiliates, at a y-o-y rate of -4.3%, compared to the -4.4% recorded in the previous month, showing that affiliation may have started a slowdown stage in its decreasing rate. Looking at the professional situation of affiliates, the affiliation increase affected both employees (23,100) and self-employed (7,400). Compared to the previous year, the number of employees decreased by 674,800, -4.9%, and self-employed recorded a fall of 46,400, -1.5%, in both cases a tenth below the decreasing rate recorded in the previous month.

The construction sector continues to lead the annual decrease rate of SS affiliations

By branches of activity, the affiliation increase was exclusively focused on services, with a m-o-m increase of 50,700. Within the other important affiliation branches it decreased compared to the previous month but the drops were not very noticeable. With seasonally and calendar ad-justed data, affiliation experienced a slight increase compared to the previous month in agricul-ture, almost remained the same in services and decreased in industry and construction, intensify-ing the fall in the latter sector. Compared to the previous year, the loss of affiliates continued in these four important sectors, even though the decreasing rate was much higher in construction (-15.7%), where it has even intensified, whilst it has moderated in the other sectors. The total number of contracts signed in March increased to 969,600, with a y-o-y fall of 5.6%, compared to -1% recorded in the previous month. The first quarter of 2013 ended with sim-ilar figures to those seen in the previous year. Adjusted for seasonal factors a similar m-o-m de-cline also took place (-5.4%) although for the first quarter of the year as a whole the result was slightly positive, and marginally better compared to the result of the fourth quarter of 2012. Of the total of new contracts, over 98,000, 10.1%, were permanent, a percentage once again above the one recorded in the previous year.

Recorded unemployment moderates the annual growth rate in the last few months

Registered unemployment, using figures from Public Employment Services, rose at the end of March to 5,035,200 people, with a decrease of 5,000 people over the previous month. Compared to the previous year the increase is 284,400, with a y-o-y rate of 6%, below the 7% cor-responding to February and the 8.3% recorded in January. The seasonally-adjusted figures show a slightly higher monthly drop (6,200 people), with a negative m-o-m rate (-0.13%) equivalent to the average of the one recorded in the preceding two months. These negative rates of reduced ab-solute value contrast with the strong increases registered in the recorded unemployment figures until November 2012, which seems to point to a more favourable trend in its recent evolution.

The m-o-m decrease of March’s registered unemployment exclusively affected workers in the services sector, with 15,800 less people, due to the movements that took place over Easter. Within the previous group of unemployed people it increased by 5,100. Among young people un-der 25 years old unemployment, which registers almost 480,000 people, practically remained sta-ble. Compared to the previous year, the rates of the large economic sectors of activity recorded favourable progress in March, compared to the equivalents of last February. The rates also im-proved for the above mentioned groups: those without previous employment and young people, where y-o-y decreases in March exceeded those recorded in February.


-8

-4

0

4

2007 2008 2009 2010 2011 2012

Employment LFS

Social security covered workers

Sources: INE (LFS) and MESS.

G 10. EMPLOYMENTyear-on-year change in %

-30

0

30

60

90

2007 2008 2009 2010 2011 2012

Unemployment LFS

Registered unemployment

Sources: INE (LFS) and MESS.

G 11. UNEMPLOYEDyear-on-year change in %

The labour cost per worker decreased by an annual 3.2% in the fourth quarter of 2012…

According to the Quarterly Survey of Labour Costs (ETCL) of the fourth quarter of 2012, the labour cost per worker and month recorded a slow down of 3.2% compared to the pre-vious year and in comparison with -0.1% of the previous quarter, a fall in line with the estimation of remuneration per employee (-3%), that was forecasted by the Quarterly National Accounts for that quarter. Last year ended with an annual average decline of 0.6%, compared to a 1.2% in-crease in 2011. The increase in the fall rate of the labour cost in the last quarter of 2012 was due both to wage costs, especially tp the effect of the elimination of the extra pay for public sector workers, and also to non-wage costs.

-4

0

4

8

2008 2009 2010 2011 2012 2013

Wage ordinary costs

Collective bargaining

Wage drift

Sources: INE and MESS.

G12. WAGE DRIFTyear-on-year change in % and points of change

-5

0

5

10

2007 2008 2009 2010 2011 2012

Industry

Construction

Services

Source: INE (ETCL: Quarterly labour cost survey).

G 13. WAGE COSTSyear-on-year in %

...especially impacting the wage cost

The wage cost recorded an annual fall of 3.6%, compared to the slight progress recorded in the previous quarter. This heavy fall was due to extraordinary wage costs (delays and other payments), which recorded a y-o-y drop of 19% compared to the 0.9% progression in the previous quarter, a fall on which the above mentioned elimination of extra pay for public sector workers has had a significant influence. On the other hand, the ordinary wage cost component continued the moderation trend observed during the past three months and recorded a y-o-y stability com-


pared to the slight progress (0.2%) registered in the previous quarter. The difference between the ordinary wage rise and that agreed in collective agreements, so-called wage drift, became slightly more negative (-1.3 p.p.), compared to -1.1 p.p., recorded in the third quarter. The remaining labour cost, the item Other costs, experienced a y-o-y fall of 1.8% com-pared to a less significant fall recorded in the previous quarter (-0.9%). Most of its components contributed to this steep fall, although the most important ones, with a huge difference compared to the rest, were non-wage payments, especially costs of dismissals, and mandatory social security contributions. Average compensation per redundant worker stood at € 10,105, a figure that im-plies a slight increase (0.1%) with respect the last quarter of the previous year.

Wage rates agreed in the collective negotiations in February stood at 0.6%

According to the Ministry of Labour and Social Security’s Collective Bargaining Agreement Statistics, 184 agreements were recorded at the end of February, of which approximately three quarters corresponded to wage reviews from multi-year agreements with economic effects in 2013. Of these, 47 agreements were newly signed, which affected 24,800 workers, with a wage rise of 0.9%. This increase exceeds by three tenths the limit established in the agreement signed at the end of January 2012 by the trade unions and employers’ associations for this year. The regis-tered agreements affected a total number of 800,500 workers, representing 12.8% of the whole workforce covered by the collective negotiation last year. The agreed wage rise has been set at 0.6%, 0.7 points below the one initially agreed in 2012. In turn, last year’s opting out of the col-lective agreements stood at 748, which affected 29,352 workers, and the data accumulated from the first two months of 2013 stands at 430 salary opt-outs that affect 19,380 workers.

Foreign sector

Ther foreign net lending continues to decreaset...

According to the Balance of payments data of January 2013, the foreing net lending to

the Spanish economy was € 2,346 million, after six consecutive surpluses, as opposed to a foreing net lendingt of € 4,641million the previous year.

...due to the decrease in the current account deficit

The decrease of the foreign imbalance is explained by a 43.9% decrease in the current ac-count deficit and, to a lesser extent, by the capital surplus increase. Within the current balance, the trade deficit decreased by 10.8%, as a result of the exports’ increase above that of imports (10.1% and 6.8%, respectively). The services’ surplus increased by 17.6% y-o-y, due to the growth of the total balance of other services, whilst net revenues from tourism decreased slightly. The deficit in income balance decreased by 41.4% and, finally, the negative balance of current transfers de-creased by 13.7%.

Non-energy balance returns to the surplus in January

According to Customs, trade deficit decreased by 4.3% y-o-y in January, a very moderate

change compared to the figures recorded over the previous five months, but that extends the ad-justment path that was started in 2011 and put on hold in February 2012, as a result of a progress of exports exceeding more than two percentage points to that achieved by imports, 7.9% and 5.7%, respectively. The foreign imbalance adjustment was exclusively due to the non-energy component, which ended with a new monthly surplus (thirteen in a row), whilst the energy deficit


increased by 14.8%. When broken down by geographical areas and countries the trade balance shows surpluses with the European Union, the Eurozone, France, Italy, the United Kingdom and Portugal, whilst the trade deficit with countries not included in the Union increased by € 312 mil-lion.

-100

-80

-60

-40

-20

0

20

2009 2010 2011 2012 2013

Total

Energy

Non-energy

Sources: DA and SGACPE.

G 14. TRADE BALANCEaccumulated 12 months, billion euro

80

90

100

110

120

130

140

150

2009 2010 2011 2012 2013

Exports

Imports

Sources: DA and SGACPE.

G 15. FOREIGN TRADE, VOLUMEindex 2005=100, s.a.

Export prices, approximated by unit value indices, grew in January by 2.4%, two points

less than in December, resulting in a 5.3% increase in real terms, following a 0.2% increase the previous month. The analysis by group of products in volume reflects a positive performance in general terms. After falling in December for the first time since October 2009, the exports of non-energy semi-finished goods recovered in y-o-y terms, the exports of non-food consumer goods, group that includes private vehicles, maintained its growth rate and the exports of capital goods and food continued increasing, speeding up the first ones and slowing down the second ones, whilst energy exports decreased after a strong advance in the previous month.

On the other hand, import prices dropped by 0.9%, recording a 4.3% fall in energy prices

and another one of 1.1% in the other products. In real terms, imports increased by 6.7%, the first progress since July. In general, the different products record y-o-y growth in real terms. Energy and capital goods imports recovered after the fall recorded in the two previous months. Foods and non-energy intermediate goods imports also increased, which correlates closely to the economic cycle, after five consecutive recessions. On the contrary, non-food consumer goods imports, the group that includes private vehicles, accentuated their rate of decline to 7.7%.

Volume imports edge upwards

With seasonally and calendar adjusted data, volume exports and imports experienced monthly increases of 5.9% and 19.5% respectively, offsetting the falls recorded in the two previ-ous months. In the last three months, volume exports followed a negative path compared to the three previous months, a more stable rate than the monthly one following the stabilisation record-ed in the previous month, whilst the world trade in goods, according to the Netherlands Central Planning Bureau, increased slightly more than one percentage point during the quarter that ends in January. On the other hand, during the November-January period, imports recorded a slight ad-vance after having slowed down during the four previous months, an improvement to which all groups contributed: the increase in capital goods purchases strengthened, non-food consumer


goods and non-energy semi-finished goods imports recovered and food and energy decreases less-ened.

Financial flows from abroad generated significant net capital inflows

According to the Balance of payments, in January, the change in liabilities maintained a positive balance, and that of the change in assets became negative again after December’s lull. In this context, the financial balance, excluding the assets for the Bank of Spain, generated net capi-tal inflows, for the fifth consecutive month, of € 30.374 million, compared to outflows of € 6.927 million the previous year.

The change in liabilities generated net inflows (investments) of € 28,828 million, com-

pared to net outflows of € 11,120 million in January 2012, recording positive balances since Sep-tember, after fifteen consecutive months recording negative net balances. Within the liabilities, direct investment recorded net capital inflows of € 2,563 million, twice as much as the previous year, whilst other groups changed direction and registered capital inflows of € 15,928 million the other investments (loans, deposits and repos) and € 10,334 million the portfolio investments, which are broken down into investments worth € 4,695 million in Public Administrations equities and € 5,639 million in private sector equities (the sixth and fifth consecutive months with positive balances, respectively).

On the other hand, change in assets recorded net outflows (investments) of € 1,546 mil-lion, 63.1% below the ones recorded in the previous year. Direct investment and other invest-ments (loans, deposits and repos) changed sign, generating capital outflows (investments) of € 188 million and 1,510 million, respectively, whilst portfolio investment recorded net capital in-flows (disinvestments) of € 926 million, compared to € 44 million recorded in the previous year. Finally, financial derivatives resulted in net capital inflows of € 2,319 million. Net assets of the Bank of Spain increased by € 28,068 million. This amount includes in-creases of € 934 million in reserves and € 27,930 million in assets on the Eurosystem, which is the fifth increase after fourteen consecutive falls and a decrease of € 796 million in the remaining net assets. At the end of 2012, the net borrowing position of the Bank of Spain against the Eurosystem stood at € 332.6 billion, € 71 billion less than at the end of June.

Budget execution

The data in the first months of the year are not representative of the annual budget execution

During the first two months of the year, the State recorded a deficit in terms of National Accounts, of € 23.6 billion (2.2% of GDP), 14.9% above the € 20.5 billion (1.9% of GDP) rec-orded during the same period of 2012. Non-financial resources and uses fell by 41.5% and 2.4%, respectively. It is worth noting that these figures are not indicative of the evolution that this year’s budget outturn will finally take, due to the volume of tax refunds that have been accumulated dur-ing January and February of this year, plus the advance of transfers to the Social Security and to the State Public Employment Service. In cash terms, up until February the State registered a defi-cit of € 15.4 billion, compared to € 9.2 billion recorded during the same period of 2012, which indicates a 67.6% growth, but which is not an indicator of the end of the year, due to the above mentioned reasons. Non-financial receipts were lower than the ones recorded last year by 24.3%, whilst non-financial payments increased by 1.9%.


T 6. State budget outturn

Accumulated amounts in millions of euros and rates of change over previous year

2012

Outturn

2013

Budget

%

Change

2012

February

2013

February

%

Change

1. RECEIPTS 123,344 127,025 3.0 23,063 17,449 -24.3

TAXES 75,643 106,916 41.3 19,148 15,481 -19.2

Personal income tax 26,532 42,251 59.2 9,002 8,487 -5.7

Corporate income tax 21,435 19,012 -11.3 -389 -2,248 -

Value added tax 16,384 28,272 72.6 8,544 7,327 -14.2

Excise duties 4,285 9,578 123.5 931 923 -0.8

Others 7,006 7,802 11.4 1,061 992 -6.5

OTHER RECEIPTS 47,701 20,109 -57.8 3,914 1,968 -49.7

2. PAYMENTS 152,357 165,087 8.4 32,258 32,860 1.9

Wages and salaries 26,851 27,672 3.1 3,963 3,984 0.5

Goods and services 3,528 2,857 -19.0 331 323 -2.5

Interest payments 26,055 38,615 48.2 6,686 7,947 18.9

Current transfers 84,244 81,751 -3.0 19,337 18,625 -3.7

Real investment 6,762 3,903 -42.3 1,092 1,192 9.2

Capital transfers 4,917 7,695 56.5 849 789 -7.1

Contingency fund - 2,595 - - - -

3. CASH BALANCE (1-2) -29,013 -38,063 31.2 -9,196 -15,411 67.6

As % of GDP -2.8 -3.6 -0.9 -1.4

Memorandum item (National Accounts): Total taxes (1) 167,745 176,782 5.4 30,855 27,385 -11.2

Personal income tax 70,631 74,215 5.1 14,811 14,037 -5.2

Corporate income tax 21,435 19,012 -11.3 -389 -2,248 477.9

Value added tax 50,463 54,657 8.3 12,343 11,615 -5.9

Excise duties 18,209 21,096 15.9 3,029 2,989 -1.3

Others 7,006 7,802 11.4 1,061 992 -6.5

Contabilidad Nacional

Non-financial resources 126,081 9,044 5,295 -41.5

Non-financial uses 166,411 29,558 28,856 -2.4

NET LENDING (+) OR

BORROWING (-) -40,330 -20,514 -23,561 14.9

As % of GDP -3.8 -2.0 -2.2

(1) Including the participation of the territorial entities. Source: IGAE. Ministerio de Hacienda y Administraciones Públicas.

Virtual stabilisation of tax incomes in homogeneous terms due to regulatory measures

Up to February total income tax (including the territorial governments’ share in personal income tax, VAT and corporate tax) fell by 11.2%. In homogeneous terms, that is to say, if the different rates of tax refunds for both years are adjusted, the fall decreases to 0.4%. This virtual stabilization of the corrected tax collection, given the decrease of tax bases, must be attributed to the regulatory measures in force in 2013, whose impact up until February is estimated at over € 2.1 billion. The biggest impact (€ 1.4 billion) corresponds to the VAT increase and to the supple-mentary charge on labour and capital withholdings (€ 872 million), partially offset by the negative impact (€ -676 million) of the elimination of extra pay for public workers.


Amongst the largest tax figures, collection by personal income tax decreased by 5.2% (3.5% in homogeneous terms). In addition to tax refunds and the tax effects of the elimination of the additional pay (effective in January), the tax has been affected in general, by the labour market deterioration. Regarding Corporate tax, the collection figures are not relevant until April, when the first payment on account is made. Until February, tax refunds highly exceeded gross collec-tion.

Regarding indirect taxation, VAT collection decreased by 5.9% as a result of the tax re-funds’ increase, since, in homogeneous terms, revenues grew by 4.4% during the period thanks to February’s boost when accruals corresponding to December 2012 and January 2013 (for large companies) and of the fourth quarter of 2012 (for SMEs) were paid in. Finally, Excise Duties col-lected 1.3% less compared to the previous year, mainly due to the drop in tobacco duty (-4%), whilst the duty on hydrocarbons, positively affected by the legislation and management changes, increased its collection by 1.6%. (Without these changes, revenues would fall by 7.7% more in accordance with the demand of those products).

Primary expenditure falls by 2.6%.

Non-financial expenditure increased by 1.9% over the same period of last year. The

18.9% increase of financial expenses must be highlighted, therefore if this item is deducted, pri-mary expenditure will fall by 2.6%. The transfers to Autonomous Communities (-50.9%) espe-cially contributed to this fall, (given their significant importance in primary expenditure), due to the lower number of advances requested on account of the definite settlement of the year, and also the public employees’ wages (-2.7%). On the contrary, transfers to Autonomous Bodies (that grew by 28%) and to the Social Security (31.3%) boosted the State’s expenditure during the first two months of the year. In the first case, due to the advance of transfers to the State Public Employ-ment Service’s (SPEE), and in the second case, as a result of the State financing the full amount of minimum pension complements, as well as to the payment of obligations of previous years.

T 7. Social Security System Budget Outturn

Million euro in accrual terms

2012

Outturn

2013

Budget

%

Change

2012

February

2013

February % Change

REVENUE 118,604 129,287 9.0 22,641 23,976 5.9

Social Security contributions 101,106 105,863 4.7 17,419 17,003 -2.4

Current transfers 12,191 18,808 54.3 4,126 5,788 40.3

of which: from the State 9,148 15,537 69.8 3,680 5,336 45.0

Property income 3,310 2,656 -19.8 848 783 -7.7

Other (1) 1,997 1,960 -1.9 247 402 62.8

EXPENDITURE 124,416 129,404 4.0 16,832 17,509 4.0

Contributory pensions 103,515 106,350 2.7 14,642 15,343 4.8

Sickness benefits 5,451 5,831 7.0 308 278 -10.0

Maternity benefits 2,264 2,309 2.0 363 340 -6.3

Non contributory benefits 3,697 5,560 50.4 767 759 -1.0

Wages and salaries 2,270 2,313 1.9 318 312 -2.0

Goods and services purchases 1,505 1,561 3.7 160 155 -3.7

Other (2) 5,714 5,480 -4.1 272 323 18.6

BALANCE -5,813 -117 -98.0 5,809 6,467 11.3

(% of GDP) -0.6 0.0 0.6 0.6

(1) Fees and capital transfers. (2) Gross capital formation, interest payments and capital transfers. Source: TGSS y DGOESS, Ministerio de Empleo y Seguridad Social.


The state debt reaches 69% of GDP

From a financial point of view, the State, despite the cash deficit increase, reduced its

borrowing requirement by 18.1% up until February, which stands at € 23.5 billion compared to the € 28.7 billion recorded in the same period of 2012, as a result of the lower increase of finan-cial assets, (€ 8.1 billion, compared to € 19.5 billion recorded in 2012). At the end of February, the State debt, according to the EDP methodology, was € 734.7 billion (69.1% of GDP), against € 623.1 billion (59.3% of GDP) recorded one year previously.

Social Security records a surplus of 0.6% of GDP

With regard to other public administrations, the Social Security System (Managing enti-

ties and Mutual funds) recorded a surplus of € 6.5 billion in February (0.6% of GDP), 11.3% above the € 5.8 billion (0.5% of GDP) recorded up until February 2012. Revenues increased by 5.9%, mainly due to the State’s transfers (which grew by 45%), whilst Social Security contribu-tions decreased by 2.4%. Expenses, boosted by contributory pensions, which increased by 4.8%, grew by 4%. Also, the Social Security surplus recorded in February is not an indicator of the budgetary evolution trend in the current context of the labour market deterioration, as seen by the imbalance among Social Security contributions and pensions, the two main components of the System’s revenue and expenses, respectively.

March 2013

Marzo 2013

Economy & Finance

Transcript of Marzo 2013