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Spanish GDP contracted 2.8%q/q saar in 4Q12

The Spanish economy contracted 2.8%q/q saar in 4Q12 (or 0.7%q/q, not annualised). The outcome was only a tick worse than last week's tracking estimate of the Bank of Spain. The outcome for the whole of 2012 was also broadly in line with expectation; the Spanish government was expecting a GDP decline of 1.5%oya last year, while the outturn was -1.37%oya, according to the statistics office. Clearly, the economy was very weak last year, but it was not weaker than expected.
It is noteworthy, that the intensity of the recession did not clearly intensify much in 2H12, despite a fiscal tightening plan that was very backloaded last year. In particular, GDP was helped in 3Q12 by spending being pulled forward due to the VAT hike, with payback impacting 4Q12. But, the average contraction of 2%q/q saar in 2H12 was only slightly larger than in 1H12 (-1.7%q/q saar). This could be because the fiscal tightening was not being implemented as fully as planned. Or it could be because Spanish households and firms were already adjusting their spending in the first half of last year in anticipation of a larger fiscal drag at year-end. Or a large part of the fiscal drag in 4Q12 led to a collapse in imports and was thereby "exported" to Spain's trade partners. The response of imports to domestic shocks is often very large, but it can also overreact in the first instance, so that more of the drag could still feed through in subsequent months.
No details were published with today's report to help assess the sources of the weakness. Our expectation is that the economy will contract at a similar pace (2.5%q/q saar) in the current quarter, then at a slighly slower 1.5%q/q saar pace in 2Q12 before stabilising in the second half of this year. For now, the business surveys are still at low levels, but it remains encouraging that the surveys have been nudging higher in recent months. In this morning's European Commission survey, Spanish economic sentiment rose another 0.5pts to 88.2, which is almost 5pts above the level in August last year when the ECB announced the OMT. The Spanish PMI has also nudged a bit higher through to December.
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