Author Archives: Edward Hugh

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

What Exactly Is Going On In Finland?

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Finland, we have recently been told, is the world’s most prosperous nation, and it is deemed to be prosperous not only in monetary and financial terms, but also in terms of the implicit wealth of its democracy and governance. This striking assessment is to be found in the latest edition of what is known as the “Prosperity Index”, an initiative launched by the Legatum Institute, a London-based think-tank. In fact Finland took first prize – up from third last year – and was closely followed by Switzerland and the other Scandinavian countries (Sweden, Denmark and Norway – also see Doug Muir’s “debunk” of all this brouhaha here).

Finland was also notable for its recent second-place showing in the latest edition of the Tech-competitiveness index released by the Economist Intelligence Unit. The Index, which is commissioned by the Business Software Alliance, analyzes data on 66 countries around the world in an attempt to determine which of them have the most competitive information technology sectors. The study, now in its third year, examines variables like the overall business climate, the pervasiveness of the tech infrastructure, the strength and transparency of its legal system,and the availability of a well-educated and technologically literate workforce. As I say, Finland came in second to the United States, displacing last year’s runner-up, Taiwan.

And if these accolades weren’t enough already enough Finland this year took 6th place in the World Economic Forum’s Global Competitiveness Report (having been number one on earlier occasions). The Global Competitiveness Report purports to identify the world’s most competitive economies in terms of their prospects for economic growth.

Given all of this, you would really expect Finland to be doing pretty well during the current global recession, wouldn’t you, what with all that fabulous prosperity and those stupendous growth prospects? So is it? Well unfortunately it isn’t, indeed during the second quarter of 2009 Finland (which was way out in front of Ireland, another of those previous ECB “poster boys”, which only managed to clock up a 7.4% annual contraction ) had the worst recession in the entire Eurozone, well behind the so called “PIGS” who everyone suspected previously suspected would be the ones to drag the common currency area to its downfall and ruin.

So in order to find out what is actually happening in Finland, and to take an inside look at the harsh reality that lies behind all those gleaming reports, let’s take a leap across to the Finnish Statistics Office, just to see what is really going on right now in what some consider to be the world’s most prosperous nation. Continue reading →

Here Comes The European Recovery

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Can’t you just see it?

According to Eurostat in both the euro area (EA16) and the EU27, the seasonally adjusted household saving rate continued to increase and the household investment rate to decrease n the second quarter of 2009. In both regions the fall in business investment rates and profit shares continued, though at a lower rate. In the second quarter of 2009, the seasonally adjusted gross saving rate of households was 14.4% in the EU27 compared with 13.5% in the first quarter of 2009. In the euro area, the household saving rate was 16.5% in the second quarter of 2009, compared with 16.0% in the previous quarter. In both cases these were the highest rates recorded since the start of the time series in the first quarter of 1999.

Can’t you see it now? Maybe you need to squint harder, let’s try this – in the EU27 the gross investment rate of non-financial corporations was 20.8% in the second quarter of 2009, compared with 21.4% in the first quarter of 2009. In the euro area, the investment rate was also 20.8% in the second quarter of 2009, compared with 21.4% in the previous quarter. In both cases (again) these were the lowest rates recorded since the start of the series in the first quarter of 1999.

Still not got it? Savings up and investment down – where’s the demand coming from? Ah, yes, government stimulus. Oh well, hard luck this year, let’s try again in 2010. Or maybe someone, somewhere will finally get it: the name of the game is now (extra community) exports, and the value of the euro is going to matter.

Ukraine’s Problems Show No Sign Of Abating

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Despite the fact the Ukraine administration is resplendent with confidence that the International Monetary Fund is going to release the next $3.4 billion payment under the country’s $16.4 billion lending program with the Fund, things are not so clear. In fact the International Monetary Fund only this week warned Ukraine (25 October) that they might freeze assistance ahead of the forthcoming presidential election if proposals to make populist wage and pension increases move forward. Continue reading →

Beyond The Consensus On European Bank Credit

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Well, I never thought I would have to wait very long to get some confirmation of my last post on things that could go bump in the night in France, but even I wasn’t expecting confirmation of what I was trying to get at so quickly. Now, according to Frank Atkins in The Financial Times this morning:

The eurozone has reported the first year-on-year fall in bank lending to the private sector, strengthening the case for the European Central Bank to maintain its ultra-loose interest rate policy. The latest eurozone credit statistics indicated lending had been scaled back at an unprecedented pace, even though signs have become stronger that the 16-country region’s economy has stabilised.

What are we talking about here? Continue reading →

The French Rebound Continues In October While Germany Moves Sideways

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Whoever would have thought that some people once called economics the most dismal of sciences? Certainly, as the current crisis goes on and on, those of us who consider ourselves to be economists scarcely are able to find the time to squeeze in a dull moment, even here and there. But even at a broader level, interest in that most dismal of dismal topics – the theory and practice of central banking – seems now to fire up levels of enthusiasm here in Spain that make even the appetising prospect of a forthcoming Real Madrid-Barça football match pale in intensity. Even if it is the case, I have to admit, that the everyday Johnny (or Jill) come lately sitting in the bar still – truth be told – prefers the sports columns of the daily newspapers, or the lacivious details of the latest romantic adventure of one of the rich and famous to a careful perusal of the detailed minutes of the last policy rate setting meeting over at the central bank. Continue reading →

Spain’s Current Account Deficit Folds In On Itself

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Spain’s current account deficit fell to 2.064 billion euros in July from 7.752 billion euros a year earlier as imports tumbled, according to the latest Bank of Spain data. This is a very sharp and dramatic fall, and my guess is that at this rate the gap will close in six months or so, which will be a very strong correction, and potentially very painful for Spanish living standards.

Continue reading →

Spain’s Manufacturing Contraction Accelerates in September

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Well here’s the first BIG news of the day – Spain’s Manufacturing contraction accelerates in September. Of course, how could it be otherwise. But I do wish all those people who are still in denial on what is now an all too evident reality would finally come out of the woodwork and do something. If Spain really goes down, it will drag the rest of the Eurozone with it, like Moby Dick, taking Ahab Trichet and his crew careering down to the murky bottom with him. Brussels, Frankfurt, you need to react. Zapatero has to go, and he has to go now. Spain needs a set of rational policies to deal with the crisis, before things really get out of hand.

September PMI

Key points:
– The Rate of output contraction accelerated.
– First reduction of new orders in three months.
– Job shedding intensified.

September data pointed to another deterioration of operating conditions in the Spanish manufacturing sector. Both output and employment fell at faster rates, while new business decreased for the first time in three months. The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – dropped to 45.8 in September, representing a marked deterioration of business conditions. Moreover, the pace of decline accelerated to the fastest since June. Output contracted solidly in September, and at a sharper rate than in the previous month as demand in the sector decreased. Production has now fallen in nineteen of the past twenty months. Continue reading →

Germany – The Bitter-Sweet Tears Of Angela von Merkel

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German voters gave Chancellor Angela Merkel the green light for a second term on Sunday, along with a clear mandate to form a new government with the liberal Free Democrat Party (FDP). But just what exactly is the new government likely to do? Merlek has been quick to pour cold water on any idea of early tax cuts, “I expect we’ll agree very quickly on tax policy, especially when you look at the leeway we have with the budget,” she is quoted as saying.

Angela Merkel’s room for maneuver is limited by the fact that Germany has been steadily racking up debt to tackle the crisis. Only today the Federal Statistical Office have said that the deficit in the overall public budget increased to euro 57.2 billion in the first six months of this year from euro 6.9 billion a year earlier as spending rose sharply (8.1%) and revenue declined (1.7%). No figure was given as a proportion of gross domestic product, but it seems to be around 4.89% of the GDP registered in the first six months (unadjusted GDP was reported by the Federal Statistics Office as €1,168 billion over the same period).

So, while the mood in Merkel’s Berlin headquarters was naturally jubilant, the euphoria will not last too long, especially since things are not going to be anything like as simple as they may seem at first sight. The problem, of course, is an economic and not a political one. Simply put, Germany’s apparent recovery from recession may have come “just in time” to see Angela re- elected, but the good economic news may not last much longer than this week. Continue reading →

The G20 and Why Export Dependency And Global Imbalances Matter

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With the timing of the latest G20 meeting set to coincide with the run-in to the German elections acrimonious debate has not been absent, but even as the passions generated by the arrival of voting day subside, it is clear that just beneath the surface their lie some simmering problems which simply will not go away. Despite the fact that nothing is really on the table that will make that much difference in the short run, I think the structural transformation that they are carrying out at G20 level is going to be very important in the longer term in finding eventual solutions. Continue reading →

Three Million Unsold Properties In Spain – Update

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In my last post on this topic, I said the following:

My second observation is merely anecdotal, but the Acuña & Asociados report places a lot of emphasis on the coastal situation, which has, to some extent, already been “factored in” by most participants, however quite by chance I have talked with a number of people in recent days who have stressed with me just how serious the situation is in the satellite towns around Madrid, built as they have been for Ecuadorians who never arrived, or Romanians who have already left. I think this element is yet awaiting a proper accounting, and the cost is unlikely to be small.

Well, “Lo & Behold”, Spanish property portal idealista.com have done a bit of digging, and here is what they found. Going through the official Ministery of Housing data they were able to locate 22 “black spots” (towns or cities with over 25,000 inhabitants) where the price of housing has already reputedly fallen by more than 30% from the December 2007 peak. This compares with the official average price fall of only 8% for the whole of Spain. And incredibly (see the chart below) no less than nine of these “black spots” are in the Autonomous Community of Madrid – that’s roughly 40% of the most severely affected areas nationally are in only one community.

The areas affected are Alcalá de Henares (-37%), Alcobendes (- 47.6%), Alcorcón (-34%), Aranjuez (-35%), Colmenar Viejo (-33%), Leganés (-33%), Móstoles (-33%), Pinto (-37%) and Rozas de Madrid (-35.1%). By way of comparison, in Catalonia there are only two such areas, Castelldefels (-33%) and Sant Cugat del Vallés (-32%). Many of the worst affected areas in the Mardid area are in centres of high inward migration, but there are also some quite surprising names, like Alcobendas, one of the richest towns in the whole area, and home the famous neighourhood La Moraleja where so many of Spain’s publicity seeking but camera shy elite seem to find shelter.

Of course, it isn’t clear what level of reliability is to be placed on official government statistics, but on the other hand this data does put some flesh on the otherwise anecdotal evidence I have been hearing, or on those reports of trains which stop at stations where no one seems to get either on or off. We are talking about new building with large infrastructural projects to support it here, and of course, as I keep saying, if the immigrants simply walk, who is ever going to live in some of these places?