Spanish landing looking harder
Simon Ward
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The Spanish government projects GDP expansion at a still-solid 3.3% in 2008, an election year. This looks optimistic based on recent monetary trends. As the chart shows, annual growth in real narrow money (“cash and cash equivalents”) has fallen steeply this year. After a similar plunge in 2000-01 GDP growth dropped to just 2.7% in 2002.
Housing prospects are worse now than in 2001-02. The Spanish boom has been much bigger than its US equivalent. The share of residential investment in current-price GDP stood at 4% in both countries in 1995. It peaked at over 6% in the US in 2005 but is now over 9% in Spain. Leading indicators look ominous: approvals for new housing fell 28% in the three months to July from a year before.
With downside risks mounting, government plans to ease fiscal policy look timely, albeit motivated mainly by electoral considerations. However, it is doubtful such action can substitute for interest rate relief, which is likely to come much too late for beleaguered housebuilders.
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