More evidence emerges of renewed contraction in Spanish economy
Industry and services sector at levels seen during recession
Information made available on Monday added growing credence to forecasts that the Spanish economy is set to contract in the last quarter of the year due to the ongoing turmoil in the euro-zone sovereign debt market and slowing activity worldwide.
Industrial output on October fell to its level last seen in 2009 when Spain was still locked in its worst recession in living memory, while the service sector in November suffered its sharpest decline in over two-and-a-half years.
With Prime Minister-elect Mariano Rajoy expected to announce further measures to ensure Spain fulfills its deficit-reduction obligations, the downturn in activity could also extend well into next year.
The National Statistics Institute (INE) said Monday that after correcting for differences in the number of working days, its industrial production index declined 4.2 percent in October to its lowest level in 19 months. Output shrank across the board, with the biggest falls registered by consumer durables, which contracted 13.6 percent. Production in the first 10 months of the year contracted 0.7 percent.
"Without doubt, the figure points to a deterioration in the tone of Spain's GDP in all areas, which reinforces the idea that growth will be negative in the fourth quarter of this year," Reuters quoted Tullia Bucco of Unicredit as saying.
At the same time, consultant Markit on Monday reported that its Purchasing Managers' Index for the services sector in Spain fell sharply to 36.8 points in November from 41.8 points the previous month. A figure below 50 points indicates a contraction and one above that level expansion. The services sector accounts for about two-thirds of Spain's GDP and jobs.
"The pace at which Spanish service sector activity has declined in the past two months is particularly concerning, and it now seems highly likely that the economy will record a contraction over the final quarter of the year," Markit economist Andrew Harker said.
"Although the problems in the euro zone clearly impact on the Spanish economy, it is economic crisis and a lack of demand in Spain itself that is more widely reported as being behind the current downturn."
Respondents to Markit's survey reported further job cuts in the month. That concurred with Labor Ministry figures released Friday that showed jobless claims rising to a record 4.42 million. Spain's unemployment rate currently stands at over 22 percent and is expected to rise further.
Moody's thinks regions will miss year-end deficit target
Despite increased belt-tightening, Moody's Investors Service said Monday it believes Spain's regions will exceed their combined deficit target this year of 1.3 percent by almost one percentage point.
The shortfall in the country's regions in the first nine months of the year stabilized at 1.19 percent of GDP after hitting 1.20 percent in the first half. However, Moody's said a large portion of their spending for the year takes place in the last quarter, pointing to the fact that while the deficit at the end of the third quarter in 2010 came in at 1.2 percent of GDP, the figure at the end of the year was 2.8 percent.
"Although the latest figure indicates that regions are implementing austerity measures, these efforts will be insufficient to prevent them from exceeding the deficit target of 1.3 percent of GDP for the full year," Moody's said in a report released Monday.
The government is aiming to trim the budget deficit for all of the country's administrations from 9.3 percent last year to 6.0 percent this year. That figure is based on the assumption of a surplus of 0.4 percent for the Social Security system.
however, the administration on Friday threw into question whether that surplus would be reached because of persistently high unemployment.
Separately, Fitch on Monday cut Castilla-La Mancha's long-term credit rating to BBB+ from A- because of its "stretched liquidity situation." As of the end of September, the region's deficit stood at 4.84 percent of GDP, the highest in Spain.
