The 9 Reasons Why Spain Is No PIG


Photo: Wikimedia Commons

Spain may be looking more and more like a member of the PIIGS, as its bond yield spikes along with uncertainty of the fate of Greece.But the underlying fundamentals of the country’s economy are nothing like Greece, according to Societe Generale’s Klaus Baader.

Baader believes that unlike Greece, Spain is making real progress. It’s debt situation is not that bad, its deficits are coming down, and its banking sector is sorting itself out.

This was part of the goal of kicking the can down the road on Greece. If you give Greece more and more money, you give Spain more and more time to get its economy together. It appears to be doing that quite well.

Spain's public sector debt is low

Spain's current debt to GDP ratio is at 60.1% (2010). That's below the eurozone average, and it isn't expected to go up much, with the peak projected at 70%.

Source: Societe Generale

Deficit reduction is going as planned

Spain hit its deficit target in 2010, looks likely to hit it in 2011, and only need worry about the costs of its regions throwing it off course.

Source: Societe Generale

The banking sector problems can be solved

In a worst case scenario, Spain's banks will lose €200 billion. Even if this happens, they will only need a maximum of €70 billion from the government. That's only 6% of Spain's GDP.

Source: Societe Generale

Current account balance not out of control

As the country becomes more competitive, and its exports become cheaper, its domestic demand is also in decline. That all means the country's account balance is improving.

Source: Societe Generale

Spain's export growth is just as good as Germany's

Spain's exports are just as competitive as Germany's, with exports growing 21% from 2005 to 2010 (Germany 20.9%). Wages in Spain are also low, 25% below the eurozone's average.

Source: Societe Generale

Wage growth is slowing down

Spanish wages are growing at a slower rate than German wages.

Source: Societe Generale

Spain's economy is moving away from the housing sector

It's all about a decline in domestic demand in Spain, and that's about the housing economy. It needed to shrink, and it has from 18% of the economy, to just 12%, in the past three years.

Source: Societe Generale

Private sector debt is falling

Spain's private sector debt is still high, but the savings rate has risen and credit growth is down. So the deleveraging process is well under way.

Recent data suggests, however, that individuals are still having a hard time paying their bills.

Source: Societe Generale

Spain is not yet being slammed with high interest rates

Spain's interest rates are not yet as high as places like Greece, Ireland, and Portugal.

Contagion from the Greek crisis is making that situation look worse, however.

Source: Societe Generale

But what are the contagion risks from Greece?

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