While we understand Europe’s desperation to telegraph an improvement in its economy, driven by both GDP and such sentiment indicators as PMI data, very much as we saw in early 2011 before the carpet was pulled from beneath Europe and it promptly slid into a double dip, one thing that is unclear is why Europe continues to insist using Spain as the marginal indicator of improvement. After all, for every 50+ PMI print or "just barely positive" GDP there is a total (or youth) unemployment chart rising to fresh highs and confirming there is no consumption, and certainly no loan creation – the two driving forces of Keynesian economic growth. But while those two data dynamics are well-known to most, perhaps the true Ying and Yang indicators of Spain’s economy are these two, somewhat less popular, charts.
On one hand we have house prices where the rate of decline and the "drawdown" from the highs, which is now a 36.5% drop, has never been worse. Bloomberg’s take: House prices are down 36.2 percent from their peak, having dropped 15.7 percent in real terms in 2012. A 6.5 percent decline in the house price index last quarter suggests prices have further to fall. House prices may drop by 13 percent in 2014, according to Standard & Poor’s.
However like every Yang, has a Ying, and if housing is Spain’s dark side, moving from the upper left in a determined fashion to the lower right, the flip chart is undoubtedly that showing the country’s bad debt, which despite the creation of the bad bank a year ago, is hitting fresh all time highs nearly every month. Bad loans as a proportion of total loans reached a record 11.6 percent in June, Bank of Spain data show. Lending by Spanish banks to non-financial corporations fell 1.3 percent in July from June and has declined almost 10 percent this year, according to the European Central Bank. That is worse than the 0.9 percent monthly contractions in Portugal and Greece. It also means, that as Bloomberg explains, that banks are likely to remain under pressure as real estate prices continue to fall.
In retrospect, perhaps Ying-Yang was not the best comparison: alas – while the charts show inverse trends, they confirm one thing: despite all the propaganda, things in Spain are going to get even worse before they get worse.