• The fourth quarter contraction was 0.8% and 1.9% compared to the previous year
  • External demand contributes 2.8 points to GDP thanks to improved exports
  • Foreign financing capacity increases for the second consecutive quarter
  • The destruction of employment stands at 4.4%, with an average annual loss of 768,650 jobs

The Spanish economy recorded a contraction of 0.8% in the fourth quarter of 2012 compared to the previous quarter, so it intensifies its rate of decline by five tenths. The recession continues like this for five consecutive quarters. In annual terms, GDP decreased 1.9%, three tenths more than in the previous quarter. In the year average, the decrease was 1.4%, one tenth lower than the Government's forecast.

Net external demand continued to evolve positively, with a contribution of 2.8 percentage points to the annual GDP rate of the last quarter, four tenths more than in the previous quarter. On the contrary, national demand continued to reduce growth and subtracted 4.7 points from the annual variation in GDP (seven tenths more than in the third quarter).

The positive contribution of net external demand to growth was due to the expansive behavior of exports, which increased by 3.2% annually – goods grew 3% and services grew 3.6% -. This favorable evolution was less intense than that of the third quarter (4.2%) as a consequence, mainly, of the loss of momentum of demand in the countries of the Euro Zone.

Imports decreased 5.4% year-on-year, two points more than in the previous quarter, with a more marked fall in the case of goods (6.1%) than in services (3.1%). The intensity of the decline in imports offset the more moderate growth of exports, so the result was an even more positive contribution of net external demand to aggregate growth.

The analysis of the components of national demand reflects a greater year-on-year decrease in household final consumption expenditure (-3% compared to -2.1% in the previous period). In quarterly rates the difference was even greater (-1.9% in the fourth quarter versus -0.5% in the third quarter). This evolution was conditioned to a large extent by the effect of the entry into force of the new VAT rates on September 1 of last year. On the other hand, the Public Administrations reduced with greater intensity the demand for final consumption (a fall of 4.1%, one tenth higher than that of the third quarter). The restrictive tone of the expenditure of administrations that had already been occurring since the beginning of the year was accentuated during the second half, once a good part of the consolidation measures of the autonomous communities entered into force.

Gross fixed capital formation registered a year-on-year fall of 10.3%, six tenths more than in the previous quarter. This record was due to the lower pulse of equipment investment, which fell by 7.9% (7% in the third quarter), as construction investment reduced its fall by one tenth (from -12.4% in the third quarter to -12.3% in the fourth).

On the supply side, according to branches of activity, both industry and construction moderated their four-year and four-tenth annual rates of decline in the quarter (-2.4% and -8.5%, respectively). On the contrary, the services accentuated their decline, going from falling 0.6% in the third quarter to -1.2% in the fourth. This fall is mainly associated with the fall in the demand for final consumption, both public and private.

The rate of job destruction increased in the fourth quarter, one tenth in year-on-year terms to -4.7% and seven tenths in inter-quarterly data, to -1.6%. Consequently, the apparent productivity per employed person slowed down two tenths at an annual rate, up to 2.9%. As the salary per employee increased from 0.1% year-on-year in the third quarter to 3% in the fourth, unit labor costs were reduced by 5.8%, double that of the previous quarter. This extends the tendency to gain foreign competitiveness that the economy has been showing since the beginning of the crisis.

Regarding the nominal variables, the GDP deflator slowed half a point at an annual rate, up to 0.1%, especially due to the evolution of the public consumption deflator, which decreased 5.6% due to the measures to contain Remuneration of the sector. He also highlighted the moderation of the export deflator (reduced its tenth annual rate, up to 1.8%). With all this, GDP at current prices accelerated its fall by seven tenths, to -1.8%.

For the second consecutive quarter, the Spanish economy registered foreign financing capacity, specifically 9,500 million euros in the last quarter of last year compared to the need for financing of 6,171 million euros a year earlier. In terms of nominal GDP, it represents a financing capacity of 3.6%, which represents a substantial correction compared to the need for financing of 2.2% of GDP in the fourth quarter of 2011.

In short, 2012 was a year of important corrections of the imbalances of the Spanish economy, which lay the foundations for future recovery and were compatible with a contraction of activity lower than that foreseen by the Government. That year the Spanish economy contracted 1.4% on an annual average, a fall that improves by one tenth the official government estimate made for the 2013 PGE.

At the same time, the correction of the imbalances was also of greater magnitude than initially anticipated: the balance of the current account balance of payments was reduced from 3.7% to 0.8% of GDP and the need for financing, since 3.2% to 0.2% of GDP. This strong improvement was not only due to cyclical circumstances but also to a good performance of exports in a framework of weaker growth than expected also for the main trading partners. This correction contributed to the moderation of unit labor costs (-3.5% in annual average), also favored by labor reform.

The other side of the fall in production was the destruction of employment, which in 2012 reached 4.4% (2.7 points more than in 2011), which meant a loss of 768,650 jobs on time on average for the year full. However, the labor reform has optimized the functioning of alternative channels of labor market adjustment other than the dismissal of workers and thus improves the relationship between the fall in GDP and that of private employment.

The largest drop in activity and employment in the last quarter of 2012 is explained by the concentration in that period of many of the measures adopted last year and by the deterioration of the activity of our business partners. With the correction of the imbalances achieved, the exhaustion of the restrictive effects of the measures and the gradual international recovery, it is expected that the contractive trend will moderate in the coming quarters to be reversed later, so that the worst moments of The current economic situation.



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