Spain has two bureaucracies issuing dueling economic forecasts, the Economy Ministry and the Bank of Spain. The latter is generally seen as more reliable because the former is firmly under the control of the politicians. While the Economy Ministry is forecasting a 0.5% drop in GDP for 2013, the Bank of Spain calls for a 1.5% decrease, a figure in line with estimates from the IMF and European Commission.
Both bureaucracies forecast a return to growth in the second half of 2013 claiming that the Spanish economy has already hit bottom. This Financial Times article actually calls out this claim referring to it as the “government narrative of an economy that has ‘touched bottom,’ and is now slowly starting to recover.”
There is a reason why economic forecasts assume a hockey stick formation when charted. Economists forecast accuracy is respectable up to 90 days out. After that window, economists do no better than random guessers at predicting what the economy will do. Why not predict good news hoping that this will increase consumer and business confidence?
Spain shrank in the 1st quarter and numbers indicate a continuance of the depression. In fact, the trend of decreasing GDP is accelerating:
Do the other numbers back this trend up? GDP is a relatively simple figure to compute: Consumer Spending + Investment + Government Spending + Trade Balance = GDP.
Let’s check out each component:
The downward trend in consumer spending continues with a particularly nasty fall late last year. There is no sign of a bottom in this chart. Investment is also dropping as banks continue to decrease lending to the private sector:
Once again, the decrease in private loans dropped precipitously in January and shows no signs of finding support. Government spending is also shrinking because of Spain’s ongoing austerity efforts:
The only component of GDP that is rising is the balance of trade. Note that it is still negative and therefore subtracting from Spain’s GDP:
Even this number took a turn for the worse in January. All of the components of Spanish GDP are shrinking simultaneously, and these trends show no signs of abating. Taking these numbers into account, the Bank of Spain’s forecast appears to be optimistic by about a point or so. Expect Spain to shrink by up to 2.5% in 2013.
The best thing that can happen for Spain is a continuing political quagmire in Italy. The mainstream media can only focus on one country at a time, and if Italy is in trouble no one will notice Spain’s deteriorating financial picture.