Spanish industrial production fell by a record 20 percent and bankruptcy proceedings almost quadrupled as the credit squeeze pushed the country’s debt-laden economy toward its worst recession in half a century. The 19.6 percent annual decline in production at factories, refineries and mines in December followed a revised contraction of 15.3 percent in November, adjusting for the number of days worked, the Madrid-based National Statistics Institute said today. The number of Spanish companies starting bankruptcy proceedings in the fourth quarter rose to 960 from 260 a year earlier, a separate report showed.

“It’s like a cluster bomb,” Salvador Bellido, president of the Confederation of Small- and Mid-Sized Companies, said in an interview. “Even the food sector, which shouldn’t really be suffering in such a situation, is suffering.” Spain’s auto industry, which accounts for about 5 percent of GDP, has started laying off workers as sales plunge. Nissan Motor Co. said it would cut 38 percent of workers at a Spanish factory and Renault SA won approval to temporarily lay off as many as 10,311. Vehicle production dropped almost 48 percent on an unadjusted basis in December, today’s report from the statistics institute said. The government has pledged 800 million euros in aid to help the industry weather the crisis. “There will be more mass job cuts in the industrial sector in the coming months,” said Jesus Castillo, an economist at Natixis in Paris. “The year 2009 is going to be a difficult one.”

In spite of a slight improvement between November and January (to 31.8 from 28.2), the latest manufacturing PMI data are consistent with a marked decline in industrial production. However, the pace of the fall is likely to slightly decrease in the coming months.These results confirm the extent of the Spanish recession. The contraction in activity should be more pronounced than expected in Q4 2008 (-0.8% q/q, published on February the 12th). More generally, GDP is likely to fall by more than 3.0% in 2009, after +1.2% in 2008 and +3.7% in 2007.
PNB Paribas