An independent Catalonia: a tricky economic scenario

The Catalan question is fascinating as it seems to be driven by purely political considerations, while the economic aspect is not thought to raise any great difficulties: the prevailing view seems to be that it will all fall into place.

Yet economics are at the very heart of this question of independence. Independence is highly unlikely to be a success if it is unable to garner robust economic momentum, at least in the initial years.

There are two points worth looking at in this respect – the final outcome of the Catalan question when a decision is truly taken and applied i.e. when Catalonia is actually independent or when it remains definitively part of the Kingdom of Spain, and, secondly the whole transition period, which is currently filled with uncertainty with the first step involving elections planned by the government for December 21. Continue reading

Spain: A new momentum on the labor market

This chart shows that the economic momentum is changing in Spain. The number of unemployed drops quickly and month after month. The peak was in April 2013 and since then the number of unemployed has been reduced by more than 335 450. This change can be seen on the chart by looking at the blue bars. We clearly see that the business cycle dynamics has changed. Continue reading

Spain vs France – The new match will be different from that of 1992

In September 1992 during the European Monetary System crisis, the Spanish Peseta was devalued by 32% vis-a-vis the Deutsch-mark while the French Franc’s exchange rate remained stable. This situation was the source of tensions between French and Spanish producers. The increased competitiveness of Spanish products was a source of fragility in France, mainly in the south.
Last Thursday I was at a dinner in the south of France, in Narbonne with business leaders and the recrimination was the same. Due to reforms in Spain, Unit Labor Costs’ indices (ULC) do not have the same profile on each side of the Pyrenees. We can notice this point on the chart, below. In Spain at the end of 2013, the index is 17% lower than it was in the first half of 2008. In France, it is just 2.5% lower than more than 5 years ago. (All these measures are corrected for inflation). The divergence is striking and the change in competitiveness conditions can clearly be perceived. Continue reading

Good News in the Euro Area may come from the South now

In Spain the synthetic index for the PMI/Markit survey shows stabilization in the manufacturing sector. In Italy the trend is upward but does not converge yet to stabilization (49.1 for the index). This can be seen on Chart 1.
In Spain the index is at 50 showing a stable activity for the first time since April 2011. The really good news is that the impulse comes from the New Export Orders index which jumped to 54.9 in June. It’s a very important first step for global economic stabilization in Spain
In Italy the main catalyst was production and if the New Export Orders remains above 50 (52.2) there is no spike comparable to Spain’s.

This is the first step for a renewal in the South

spain-italie-2013-june-pmo

spain-italy-2013-june-pmi-exopot

Spain – The labor market deterioration will have long lasting effects

Month after month the Spanish labor market is becoming more and more unbalanced. The number of unemployed is 6 million but the most frightening figure is that the proportion of unemployed with a duration above 2 years is 35.1% (first quarter of 2013). It is by far the largest proportion on the chart below. As new flows (less than 6 months) are high but stable the proportion of unemployed with long duration will increase in the coming months by transfer from other categories.
To have a comparison with France which has also a high level of unemployment, the duration of unemployed for more than one year was 58.5% in Spain during the first quarter of 2013. It was 39.9 % in France in March 2013. Continue reading