Spanish Unemployment, Housing and Balance of Payments

by: Edward Hugh posted on: July 03, 2008 | about stocks: EWG / EWP    
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Unemployment in Spain

Registered unemployment in Spain, where construction firms added more than 1 million jobs between 2000 and 2007, increased in June as the collapse in home-building continued and the impact of the shock to the financial sector gradually worked its way across the real economy.



The number of people claiming unemployment benefits rose 1.5 percent, or 36,849, from May to 2.39 million, the Labor Ministry reported today. From a year ago, the number of claimants has risen by 22 percent, or by 424,555.


Housing starts were down 41 percent in April from a year earlier and the number of mortgages granted fell 9.4 percent. Finance Minister Pedro Solbes admitted for the first time yesterday the that the home-building collapse will likely bring the Spanish economy to the brink of a recession by the end of this year. The Spanish economy expanded by 3.8 percent last year.

Jobless claims among construction workers were up 71 percent on the year to 370,208. Unemployment in service industries increased 18 percent or 211,198. The number of immigrants claiming benefits jumped 74 percent to 258,800. The number of registered workers in Spain declined 0.1 percent, or 18,823, to 19.36 million.

Spain's unemployment rate, as published by the statistics institute and based on the monthly labour survey, jumped to 9.6 percent in the first quarter from 8.6 percent in Q4 2007. The institute will release figures for the second quarter on July 24.

Spanish Housing News

La Sociedad de Tasación Reports New Build Price Drop

The average price of newly built property in Spain's regional capitals fell by 1.2% in the first 6 months of the year, the first time this has happened in 15 years, according to the latest report from La Sociedad de Tasación, Spain’s largest appraisal company.

The report shows that new build property prices fell in 35 of Spain’s provincial capitals, but rose in 11, though by less than the general inflation rate. As a result, the average price of newly built property in Spain’s cities fell by 1.2% to 2,781 Euros per square metre at the end of June. During the same period last year, new build prices rose by an average of 4%. This is the first time that new build prices published by La Sociedad de Tasación have fallen since the recession of 1992 and 1993, when prices fell 1.5% and 0.2% respectively.

Real Estate Marketing Discount Study

A new study by the consultancy Real Estate Marketing (REM) reveals that 6 out of 10 Spanish developers are now offering discounts to buyers in an effort to make sales. When indirect discounts are included 71% of developers are offering buyers improved terms. 41% of the developers surveyed by REM reported that discounts of between 10% and 20% delivered the best results, compared to 18% favouring discounts of up to 10%, and 11% offering discounts of 20% to 30%. Only 5% of the developers surveyed were willing at this point to consider discounts of more than 30%.

DBK Coastal Property Study

A third of all new developments on the Spanish coast have been on the market for more than 3 years, according to a new study from the consultancy DBK. The company looked at 326 new developments for sale on the coasts of Catalonia, The Valencian Community, Murcia, Andalucia, The Balearics, and The Canaries. 34% of these new developments have been on sale for more than 3 years.

The report reveals that almost half of the projects studied are now selling ‘key in hand’, compared to less than 10% three years ago, when off-plan sales were the norm. DBK forecast that sales of newly built properties on the Spanish coast will fall by 15% a year for the next 2 years. That translates into 90,000 properties sold in 2008, and 76,500 in 2009.

This continues a trend that was already underway in 2007, when sales of holiday homes on the Spanish coast fell 4%, according to the report. Last year’s sales performance varied considerably by region, with sales falling by more than 20% in Catalonia, The Canaries, and The Balearics, but rising by 22% in Andalucia, and 14.5% in Murcia.

The report warns that the stock of unsold new properties on the Spanish coast is growing, estimating that it swelled by 315,000 properties between 2004 and 2007. It also warns that the market situation is deteriorating due to falling buyer confidence, rising interest rates, rising mortgage delinquencies, the credit crunch, and a rising Euro that is pricing British buyers out of the market.

Housing Starts and Planning Permission

As is well known, the number of new homes being built in Spain has slowed dramatically this year in response to falling demand, and a glut of new properties on the market. Planning approvals in the first four months of the year fell 56% compared last year (from 276,588 to 120,680), according to new figures from the Ministry of Development. The number of planning approvals started falling last July, when they had reached an annualised rate of more than 700,000 per year. If the trend continues, there will be fewer than 350,000 planning approvals this year.

Housing starts are holding up slightly better than planning approvals. According to the Ministry of Housing, housing starts fell 36% in the first quarter (to 108,275) says the Ministry of Housing. Over the 12 months to the end of March there were 484,199 housing starts, 26% less than the previous 12 months.

Housing starts for government subsidised social housing were down 58% in the first quarter, despite government plans to use an increase in social housing to cushion the fall in the construction sector.

Whilst housing starts have been plunging, the number of new build properties completed has been rising. Not including social housing, 165,698 new properties were completed in the first quarter of the year, 23% more than the same time last year. Over 12 months 610,349 properties have been finished, an increase of 3.4% over the previous 12 months.

The Housing Ministry has also revealed that 423,000 new households were created in 2007, of which 80% are owner-occupiers, and 20% renting.

By the end of 2007, there were 24.5 million properties in Spain, an increase of 2.7% over 2006. 16.77 million properties, or 68.5% of the total stock, are used as primary homes.

 

Spanish Balance of Payments

Spain had a current account deficit in April of 8,726.9 million euros, slightly up on the 8,608 billion euros registered in April 2007. According to the Bank of Spain this deterioration is due to two factors, an increased in the goods trade deficit (oil), and a growing deficit on the income account (structurally not good news, but if you will borrow so much money, what can you expect?). As far as the trend in the current account deficit goes, during the January to April period the total deficit was 40.72 billion euros, while in the same months of 2007 the total was 35.245 billion euros. This is a year on year increase of 15%.

This rate of increase is considerably down on the 26.3% increase registered over January to March 2008, but since April this year is obviouslt such an unusual month (the Easter factor, data I am seeing from country after country for all kinds of items confirm this view, beware the ides of April) it would be very premature to draw any conclusions from this at this point. Other items worthy of note in this month's data are the fact that foreign banks sent funds into Spanish deposits again in April, which enabled Spanish banks to also transfer funds back out of Spain. More importantly perhaps, the liabilities of the Spanish banking system with the eursystem were up again in April, and sharply, by 15.869 billion euros.

The Trade Deficit

To get some idea where we are here, it is perhaps worth mentioning that the goods trade deficit was 7,198 billion euros in April ( up from 6,966 billion euros in April 2007), while the services surplus was 1,372 billion euros (up from 998 billion in April 2007). Over the January to April period the goods deficit was 31.653 billion euros (up from 26,788 billion euros in January to April 2007), while the aggreagte services surplus was 4,849 billion euros (up from 4,031 billion euros in the same period last year).

Both imports and exports were up substantially on the year (exports 25.1% and imports 18.2%) but since April is the month which normally contains easter, I don't think anything very interesting can be concluded about this at this point.

The negative income balance was up in April, to 1.909 billion euros, compared with 1.727 billion in April 2007. The balance on current transfers (which contains of course remittances from migrants) was a negative 991 millon euros, a deficit which was up around 10% on the 913 millon euros registered in April 2007. Again, as the Spanish economy slows it will be interesting to see how the remittances are affected.

In April the capital account had a positive balance of 258 millon euros, down from the 278 millon positive balance registered in April 2007.


The Financial Account


This large deficit in the Spanish current account - which resulted in a net financing requirement of 8.469 billion euros (up from 8.330 billion in March 2007) was basically (after taking into account the net movements on the financial account) covered by an increase in the liabilities of the Bank of Spain with the Eurosystem of 15.869 billion euros.

 



Spain's net external financial balance with the rest of the world resulted in an outflow of funds to the tune of 7.862 billion euros in April (as compared with a net entry of funds of 21.097 billion euros in April 2007). This increase in the inflow of external funds is very large indeed (and we will look in detail at some of the ingredients below), but the end result is that the net indebtedness of the Bank of Spain vis-a-vis the rest of the world was up by 16.053 billion euros in April (as compared with the net reduction of indebtedness of 13.771 billion euros in April 2007).




The net outflow of funds in April was mainly the result of changes in the category of "other investments" (which is basically made up by loans, deposits and repos), financial derivatives, and to a lesser extent portfolio investments.

Direct investments saw a net inflow of 1.05 billion euros, which was down on the net outflow of 5.186 billion euros in April 2007.

 

If we now come to repos, loans and deposits, there were net outflows in April of 6.013billion euros - while in April 2007 there were net inflows of 6.931 billon euros. Flows in and out of deposits at banks and other financial instutions are far and away the most important item here (about two thirds of the total, loans constituting most of the rest, while repos are pretty insignificant at this level).

 

The bottom line is that in April there was a movement of funds by Spanish financial institutions into deposits outside Spain to the tune of 16.846 billon euros while, on the other hand foreign investors moved funds into Spanish deposits and lent funds to the tune of 10.833 billion euros. As a result the lines on the chart below spike up again in April, although much less sharply than in January/February. Now let's see what happens in May.



This article has 3 comments! Add yours below...

Edward Hugh

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This article has 3 comments:

  •  
    nickgogerty
    Jul 03 09:09 AM
    My Website
    Nice to see some international coverage in Seeking Alpha. Thanks.
  •  
    adan
    Jul 03 05:07 PM
    My Website
    have you, or can you, apply this type of article (and as your very fine one on italy; haven't read the one on germany yet) to the u.s.?

    thanks!
  •  
    Edward Hugh
    Jul 06 07:31 AM
    My Website
    Hi Adan,

    "have you, or can you, apply this type of article (and as your very fine one on italy; haven't read the one on germany yet) to the u.s.?"

    Sorry. I'm into a lot of things, but I don't stretch to everything. There are, however, a lot of fine economists out there doing analysis. Many of them differ from one another in their conclusions, of course, but that is where you need to exercise your own judgement.

    Good Luck,

    Edward
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