crisi - conde ruiz

8/14/2019 Crisi - Conde Ruiz

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SPANISH ECONOMY: FINANCIAL CRISIS AND POLICY RESPONSES

PR09OEP012

J. Ignacio Conde Ruiz

Director, Department of Economic Policy

Economic Bureau of the Prime Minister

Giornate di Studio nFA 2009
http://www.noisefromamerika.org/index.php/articoli/Giornate_di_Studio_nFA_2009


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The Spanish economy experienced 14 consecutive years of positive growth, which haveallowed it to converge with Europe in per capita terms.

1994-2008: Convergence with Europe

Convergence with Italy in GDP per capita(ppp) terms.

Convergence with the EU25 in GDP per capita(ppp) terms.

Spain/Italy

GDP per

inhabitant

Productivity

/ hour

Hours / total

employment

Employment

rate

Demographic

factor (*)

2000 83,3 88,5 91,3 101,9 101,2

2005 97,3 99,5 91,4 103,1 103,8

2007 103,4 106,1 89,4 104,5 104,4

(*) Population aged 15-64 / Total population.

GDP -volumes

-1

0

1

2

3

4

5

6

III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

QoQ YoY

Spain/EU25

GDP per

inhabitant

Productivity

/ hour

Hours / total

employment

Employment

rate

Demographic

factor (*)

2000 92,7 98,4 100,2 93,9 100,3

2005 97,9 97,5 99,6 99,8 101,1

2007 101,6 101,7 97,9 100,1 102,1

(*) Population aged 15-64 / Total population.


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Housing investment in Spain, as%GDP (1996-2008) Housing starts in Spain

An Over-sized residential construction sector

The decline in the housing sector started in 2006. The international financial crisis turned

into a more severe process what could have been a smooth adjustment.

3,0

3,5

4,0

4,5

5,0

5,5

6,0

6,5

7,0

7,5

8,0

I IIIIIIVI IIIIIIVI IIIIIIVI II IIIIVI IIIIIIVI IIIIIIVI IIIIIIVI IIIIIIVI II IIIIVI IIIIIIVI IIIIIIVI IIIIIIVI IIIIIIV

1996 1997 1998 1999 000 001 002 003 004 005 006 007 008

Spain

Euro zone (2008)

0

50.000

100.000

150.000

200.000

250.000

I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Housing: investment, employment

(annual growth rate)

-25,0

-20,0

-15,0

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Inv. Vivienda Ocupados

Housing, Price index

-15

-10

-5

0

5

10

15

20

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I

2002 2003 2004 2005 2006 2007 2008 2009

Minister io de la Vivienda

TINSA

INE


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Housing sector as %GDP by country Labour force growth in 2008*

Since July 2008 1,3 million people have lost their jobs. The construction sector is thesector with the highest decline in employment and accounts for 40% of the totaldecrease.

Over-sized residential construction sector: theadjustment is costly in terms of employment

EU15* 1,2Germany 0,4

Spain 3,0

France 0,7

Italy 1,4

United Kingdom 1,1

*Average: I-III q

Employment

2007 2008 IV q 2008

Variation pp.

(IVq 2008 -IVq 2007)Spain* 7,5 6,6 6,0 -1,75

Euro area 5,7 5,5 5,3 -0,36

France 5,6 5,6 5,5 -0,18

Germany 5,5 5,4 5,4 0,03

Italy 4,8 4,8 4,8 -0,09

United Kingdom 3,3 3,0 2,9 -0,35

* Spain variation: Iq 2009-IV q2007

7

8

910

11

12

13

14

15

16

17

18

1.500

2.000

2.500

3.000

3.500

4.000

4.500

I IIIIIIV I IIIIIIVI IIIIIIV I II IIIIV I IIIIIIVI IIIIIIV I II IIIIVI II IIIIVI II IIIIVI

2000 2001 2002 2003 2004 2005 2006 2007 200809

unemployed (thousands)unemployment rate (RHS)

Unemployment (2000-2009)

18.000.000

18.200.000

18.400.000

18.600.000

18.800.000

19.000.000

19.200.000

19.400.000

19.600.000

july 2008 may 2009 dif %

Total 19.382.121 18.103.487 -1.278.634 (100)

Construction 2.361.177 1.830.059 -531.118 (41,5)

Industry 2.731.068 2.416.364 -314.704 (24,6)

Services 13.150.027 12.644.412 -505.615 (39,5)


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Spain has had high investment rates for the last 10 years. It was notexclusively housing, e.g. investment in equipment was largerThe large immigration flow (+4 millions between 2000 and 2007) spurred arise in capital expenditure to maintain the capital-per-worker ratio.

Capital-per-worker ratio

A highly indebted economy not all real estate

Investment in equipment (average growth, 1995-2008, %)

0

2

4

6

8

10

Germany

Netherlands

Finland

Austria

EU-15

Denmark

UKItaly

France

Spain

Source: Eurostat

Investment in equipment (average growth, 1995-2008, %)

0

2

4

6

8

10

Germany

Netherlands

Finland

Austria

EU-15

Denmark

UKItaly

France

Spain

0

2

4

6

8

10

Germany

Netherlands

Finland

Austria

EU-15

Denmark

UKItaly

France

Spain

Source: Eurostat


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During 2000-2008 credit grew 8% a year on average, while GDP grew 2.8%.Mortagage credit accounts for 21% of total credit to households, while the EMUaverage is 12%.Construction-related credit is 43% of total business credit. Credit to other productive activities is 57% of total business credit.

Some credit developments.....

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

. .

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

milloneseuros

Servicios (expromotor)

Promotor

Construccion

Industria

Fuente BDE

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

milloneseuros

Otros

Consumo

Vivienda

Fuente BDE

Credit to businesses Credit to households

Services(excludingdevelopers)

Developers

Construction

Manufacturing

Other

Consumprtion

Housing


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The financial crisis has transformed the way the balance of payments is financed(from portfolio investment-i.e. mortgage-backed securities-to short term financing ECB)The external financing need of the Spanish economy was 9,1% of GDP in 2008, the

first decline in 5 years

...with a major external financing need

Balance of Payments: financing the deficit

(net flow, M cumulative last 12 months)

18

2022

24

26

28

30

32

I II III IV I II III IV I II III IV I

2006 2007 2008 2009

National investment (m.a.4, %PIB) National savings (m.a.4 %PIB)

currentaccountbalance

-120.000

-80.000

-40.000

0

40.000

80.000

120.000

160.000

200.000

2004 2005 2006 2007 2008 200

Short term financing

P ortfolio investment

Fo reign direct investment

current account balance


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A balanced mix of tradition and innovation

A business model focused on long-term customer-bank relationship:

The emphasis is on the customer as opposed to the product. 54 % of bank assetsare credits, while they only account for 30% of assets in the EMU. The core-business hinges on recurrent operations and multi-product services.Thus: originate-to-hold rather than originate-to-distribute. Borrowers`risk assessment and monitoring are of greater relevance in anoriginate-to-hold framework.

The Spanish banking model at a glance

19%11% 9% 9%

15% 12% 10%7%

18% 19%

10%

4%5% 3%

8%6% 10%

8%

9% 7%

25%

15%12%

11%

13%

12%

39%

36%

25% 28%

0%

10%

20%

30%

40%

50%

60%

70%

UEM Francia Alemania Italia Espaa

Actividades Productivas

Familias no hipotecario

Familias hipotecario

Productive activities

Households nonmortgage

Mortgage


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The Spanish banking sector is highly competitive:

Real lending spread (defined as the difference between real lending rates and realdeposit rates) well below the EU average.Concentration, (as measured by the Herfindhal index: the sum of the square of themarket shares), is also far below the average for EMU countries.


Herfindhal Index

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007

Spain

MU13

Italy

Source: ECB

Real interest rate spread

0

0,5

1

1,5

2

2,5

3

3,5

4

2004Apr

2004Jul

2004Oct

2005Jan

2005Apr

2005Jul

2005Oct

2006Jan

2006Apr

2006Jul

2006Oct

2007Jan

2007Apr

2007Jul

2007Oct

2008Jan

2008Apr

2008Jul

2008Oct

Germany

Spain

France

Italy

Real lending spread


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Securitisation in the Spanish banking model is used mainly for funding as opposed torisk-transfer purposes.Since 2003, deposit growth has been lower than credit growth, causing a growingfunding gap. This gap reached 14% of total credit by the end of 2008, while in 2003 itwas 9%.The outstanding value of securitization instruments and bonds issued by the Spanishfinancial system (with data up to the third quarter of 2008) was about 480.000 million


Issuance of structured securities Funding gap

0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005 2006 2007 2008

France

GermanyItaly

Spain


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Openness index

One of Europe's most opened economies

Exports are still suffering from the global recession and have declined 19%, which hasaffected goods (-20.5%) and services (-15.9). On the other hand, imports of goods andservices decreased 22.3%

0,00

10,00

20,00

30,00

40,00

50,00

Espaa Alemania Francia Italia Reino Unido EEUU Japon

Importaciones (%PIB)Exportaciones (%PIB)Imports (% GDP)Exports (% GDP)

Spain Germany France Italy UK US Japan

World exports

-60,0

-50,0

-40,0

-30,0

-20,0

-10,0

0,0

10,0

20,0

30,0

40,0

e f m amjn jl a s o n d e f m amjn jl a s o n d e f m amjn jl a s o n d e f m

2006 2007 2008 2009

World exports

Industrial countriesOther countries


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In light of G20 recommendations, all countries have put in place the largest concerted

effort to support demand and employment in history

The policy response: Fiscal policies aimed atsupporting employment and output and resumingcredit to the economy

Spain is one of the countries that have made a greater fiscal effort, as comparedto the other main developed economies and to other EU countries.Also, according to the OECD, Spain was the third developed country toimplement a stimulus package. The measures included in Plan E couldcontribute 1% GDP Growth in 2009.

Source: OCDE

Effect on GDP level (%), 2009-2010

0

0,5

1

1,5

2

2,5

SpainAustralia

China

UnitedStates

CanadaGermanyKoreaMexico Average

JapanUKFrance India Brazil

Italy

2008 2009

Approximate cost of the discretionalmeasures 2008-2009 (%GDP)

Source: IMF


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This stimulus, named Plan E, uses both the revenue side and the expenditure side in

order to create a fiscal mix to foster the economic activity. In the revenue side, whichamount 2/3 of the total amount, include tax cut in PIT (Personal Income Tax), CIT(Corporate Income Tax) VAT and the elimination of the wealth tax. In the expenditureside is included an ambitious investment plan of 0.8 GDP points, and an industrial fundof 0.3 GDP, to foster the new economic model, including R&D.

The policy response: Fiscal policies aimed atsupporting employment and output and resumingcredit to the economy

In addition to this, we should take into account the effect of the automaticstabilizers, amounting 2.5 GDP points only in 2009, according to the Bank ofSpain.

2008 2009

Total Fiscal effort 2,5 4,7

Tax cuts 1,8 1,1

Expenditure 0 1,1

Automatic stabilizers 0,7 2,5


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Rigorous fiscal policy over the booming years pays off: A

comfortable margin for countercyclical fiscal policies.

Rigorous fiscal policy before the crisis: three years of surplus

Debt/GDP ratio among the lowest in advanced economies.

Countercyclical policies over the recession will only have a limited impact on the ratio. As a

result, the expected debt/GDP ratio in 2010 remains well below EU average.

0

20

40

60

80

100

120

140

Spain Germany United

Kingdom

France Italy

2008 2009 2010

Public debt (%PIB)

Source: European Comission, spring 2009.

-5,00

-4,00

-3,00

-2,00

-1,00

0,00

1,00

2,00

3,00

199 7 199 8 199 9 200 0 200 1 200 2 200 4 200 5 200 6 2008

Espaa Italia UE27

Deficit (%PIB)

Source: Eurostat.


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The timing of the crisis in Spain: the current situation.

The crisis hit Italian output harder than Spanish output. This can be observedboth in quarter-on-quarter growth (-1,9% vs. -2,6%) and in year-on-yeargrowth (-3% vs. -6%).

In terms of employment (LFS) the opposite is true. In the first quarter of2009, Spanish employment has decreased -6,4% compared with the same

quarter of 2008, while it Italy it has decreased only -0,9%.

1Q 2009 (QoQ) Spain Italy

GDP volumes -1,9 -2,6

Final consumption expenditure -1,3 -0,8

Household and NPISH final consumption expenditure -1,7 -1,0

Final consumption expenditure of general government -0,1 -0,3

Gross capital formation -4,4 -6,8

Gross fixed capital formation -4,2 -5,0

Exports of goods and services -11,9 -11,8

Imports of goods and services -10,9 -9,2

1Q 2009 (YoY) Spain Italy

GDP volumes -3,0 -6,0

Final consumption expenditure -1,7 -1,7

Household and NPISH final consumption expenditure -4,0 -2,5

Final consumption expenditure of general government 5,4 0,7



Exports of goods and services -19,0 -21,7


2008 Spain Italy

GDP volumes 1,2 -1,0

Final consumption expenditure 1,5 -0,5

Household and NPISH final consumption expenditure 0,1 -0,9

Final consumption expenditure of general government 5,3 0,6



Exports of goods and services 0,7 -3,7


GDP per capita PPP 104 100

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