A story from Reuters earlier today
Spain's key services sector --
more than 60 percent of the economy -- shrank at its fastest
pace in a year in December when consumer sentiment slid anew,
overshadowing an above-expectation rise in industrial output. Since Spain's property bubble burst in 2008 unemployment has
soared and increasingly gloomy consumers have abandoned the high
streets and restaurants, hitting the key services sector and
reinforcing worries over the economy's ability to recovery. "The headline PMI is consistent with stagnant growth. Our
view remains that Spain will fall back into recession this year
and, even if it doesn't, growth will be worse than government
forecasts," Capital Economics economist Ben May said. The euro zone debt crisis, which gained pace in November
after Ireland was forced to seek an EU/IMF backed bailout, has
stunted a recovery in the blocs' peripheral countries and
highlighted their disparity with the core economies.
"Near-record growth in Germany and strong expansion in
France contrasted with a collapse in growth in Italy to
near-stagnation and increased rates of decline in both Spain and
Ireland," said Chris Williamson, chief economist at Markit. Investor concern the Spanish economy will be unable to
restart after stalling last year following a prolonged recession
has pushed up bond yields and fuelled expectations the
government will be forced to apply for EU/IMF aid. The premium investors demand to hold Spanish debt over
German Bunds was around 244 basis points on Wednesday, below
euro-era highs touched at the end of last year but a long way
from the around 70 bps before the euro debt crisis began.
Markit's purchasing managers' index (PMI) of Spain's
services companies was below the 50 mark which divides growth
from contraction for the fifth straight month in December,
showing the economy is still struggling. November calendar-adjusted output rose 2.3 percent, the
National Statistics Institute said, far above a Reuters poll of
-3.4 percent, supporting government hopes of fourth quarter
growth, but clouded by continued gloom from consumers.
CONFIDENCE FLAGS Consumer confidence fell to 64.6 points in December, down
from 70 points a month earlier and the lowest recorded level
since May 2009, the Official Credit Institute (ICO) said on
Wednesday. Overall confidence was dragged down by a deterioration in
sentiment toward the current economic situation and expectations
for the economy going forward, ICO said. Prime Minister Jose Luis Rodriguez Zapatero has said the
country will beat public deficit targets of 9.3 percent of gross
domestic product and that the economy will grow in the fourth
quarter of the year. The government expects the economy to have shrunk 0.3
percent in 2010 and to grow 1.3 percent this year, a forecast
considered optimistic by many economists. November industrial output was boosted by the energy
component, which rose 7.7 percent year on year and was probably
lifted by harsh weather conditions, economists noted. But analysts were focused on the way shoppers were keeping a
tight hold on their purse strings. "PMI services is much the same story as we had on the
consumer component in industrial production, which is that
spending is constrained by the fiscal retrenchment and this is
reflected in the services component," economist at Deutsche Bank
Gilles Moec said. The Socialists have passed austerity measures last year
aimed at saving more than 50 billion euros ($66.40 billion) but
have said short-term growth would be boosted by rising exports. "Capital goods and intermediate goods, normally driven by
exports, are doing fine and this is perfectly consistent with
news on exports and the rebound in manufacturing PMI we had
earlier this week," Moec said.
Wednesday, January 5, 2011
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