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The Spanish GDP Rebounded in Q3 after Nine Quarters of Contraction

Spain emerged from a two-year recession in the third quarter. Growth was driven by overseas sales as domestic demand fell 0.3%, the Bank of Spain said today. The decline in investment slowed and private consumption grew 0.1% from the previous quarter, when it was unchanged.




These data are positive to the extent Spanish economy represents 12% of the Eurozone economy (real GDP) which implies a positive contribution of 0.012% in Q3. However, Spanish economy is still depending on exports to drive growth as austerity continues to hold back domestic demand. The recent rise of euro against main currencies could weight on GDP in Q4.


More from Bloomberg:


Spain emerged from a two-year recession in the third quarter, strengthening Prime Minister Mariano Rajoy’s efforts to repair the nation’s finances and reduce the 26 percent jobless rate.
Gross domestic product expanded 0.1 percent from the second quarter, when it shrank 0.1 percent, and fell 1.2 percent from a year ago, the Madrid-based Bank of Spain estimated in its monthly bulletin today. The data, which are preliminary, matched the median estimate of 37 economists in a Bloomberg News monthly survey.

Chinese Stats Suggest that Activity Is Accelerating

After a very weak H1 2013, several data confirmed that Chinese activity is recovering and this trend could be sustained in the coming months thanks to a global recovery, an increase of government spending and an accommodative monetary policy.


1/ The price of basic materials shows that demand has become stronger since the end of June which suggests an improvement of industrial production:
- Imported Iron Ore Prices rose 14% since the end of June while Domestic steel prices increased by 9.5%.
- Copper prices is still up 3.2% on the same period.


Source: Bloomberg


2/ This move was confirmed this morning by the rebound of imports in July:
- Imports Y/Y: +10.9% v -0.1%e (-0.7% prior).
- Jul Iron Ore imports record 73.1M tons, +26.4% y/y, record high > June Iron Ore imports 62.3M tons, +6.8% y/y.
- Jul Copper, Product imports 410.7k tons v 380.0K tons m/m, +12% y/y > June Copper, Product imports 379.9k tons, +9.7% y/y.


3/ Exports also rose in July thanks to the recovery in EU and acceleration in US:
- Exports Y/Y: +5.1% v +0.5%e (-3.1% prior).
- Exports to US: 5.2% y/y in July > -5.4% y/y in June.
- Exports to EU: 2.8% y/y in July > -8.3% y/y in June.


4/ The main indicators (Baltic Dry Index, Global PMI) suggest that global growth is also accelerating:
- On a Y/Y basis (MM-20 days), Baltic Dry index turned positive in July and rose 18% yesterday.
- JPMorgan’s Global Manufacturing PMI edged up to 50.8 in July from 50.6 in June.


5/ Government spending will accelerate in H2. As an example, State-owned railway giant China Railway Corporation (CRC) has announced a plan to raise fixed-asset investment to 660 billion yuan (106.5 billion U.S. dollars) this year to boost railway development.


6/ Since the end of June, PBOC has adopted a more accommodative policy and could cut RRR in the coming months:
- Today: PBoC to issue CNY15B in 14-day reserve repos in today’s session; For the week, injecting CNY20B v CNY136B in prior week.
- On August 2: China PBoC Q2 Monetary Report: Reiterates to continue to implement monetary policy and fine-tune action when necessary via numerous tools (including RRR).


ECB Joins Eurogroup and European Council to Secure Eurozone Recovery

Last Friday, European leaders agreed on new steps to fight youth unemployment and promote lending to SMEs. More precisely, officials agreed to deploy €8 billion (up from €6 billion) to create jobs for young people and approved plans for the European Investment Bank to lend €150 billion to small and medium-sized enterprises (SMEs) particularly in southern EU states over 2013-2015.


These decisions came as several indicators suggest that Eurozone growth could stabilize in Q2. Indeed, last Friday, consumption figures for the month of May were above expectations in Germany which represents 27% of the Eurozone economy. In the meantime, Bundesbank said in its June monthly report:


“After a weak start to the year, real gross domestic product should grow strongly in the second quarter of 2013″ 


Positive signals were also recorded in France (20% of Eurozone economy). The main driver of GDP, domestic consumption (56.3% of GDP), increased in May.


Finally, peripheral economies such as Spain or Portugal and also leaders like Germany benefited from a rebound of exports mainly because of a drop in euro in Q2. In these conditions, in order to push euro and rates lower, ECB decided to give a forward guidance, more precisely, ECB said it would keep its benchmark interest rate the same or lower “for an extended period of time”.


More from FT:


The euro hit its weakest level since May after the European Central Bank said it expected interest rates to remain at or below their current levels for an extended period of time.
Mr Draghi said the decision to give forward guidance on interest rates, which was taken unanimously by the ECB governing council, was “a very significant step forward” for the central bank.

Spanish Officials See Stabilization in Q2 2013

1/ This morning, Spain’s Finance Minister Luis de Guindos made positive comments regarding economic situation and expected GDP to be closer to zero in Q2:


More from the Wall Street Journal:


Spain’s Finance Minister Luis de Guindos said Tuesday that the rate of contraction of gross domestic product will be close to zero in the second quarter, signalling that an end to the economic recession is in sight.
According to Spanish newswire EFE, Mr. De Guindos said at a conference in the city of Santander that we’re at an inflexion point which indicates that we can leave the recession behind us.


2/ Just after, Prime Minister Mariano Rajoy said that there are positive signs regarding Spanish economy so that the worst is over. As an exemple, Rajoy underlined that exports of goods rose 8% from a year ago during first four months of the year


More from CincoDias:


“Creo que lo peor ha pasado, por eso vamos a mantener la misma línea de política económica y lo creo así porque aunque los resultados lleven su tiempo, algo que dijimos, estas políticas están dando sus frutos y hay indicadores positivos que son el prólogo o la primera página de la recuperación económica”
“En este punto, ha señalado que las exportaciones de mercancías estaban creciendo un 17% en abril en términos reales y que su crecimiento medio en los primeros cuatro meses del año ha sido del 8%.”

 My view


- Spanish economy has showed positive signs since March.
- It confirms my feeling that Eurozone growth could stabilize in Q2 2013 before recovering in H2 2013.
- Indeed, it seems that German growth (27% of EU economy) should accelerate in Q2 around 0.3% QoQ while French (20% of EU economy) and Spanish (12% of EU economy) growth could stabilize.