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José Ramón Pin Arboledas,, Professor, IESE Business School, University of Navarra

Positive indicators?

The evolution of the indicators on which analysts base their conclusions, from GDP to industrial and consumer confidence, gives hope, but also invites caution when it comes to forecasting a way out of the crisis final .

Tue, 23 Jul 2013 09:38:00 +0000 Published in El Periódico de Catalunya

One of the debates these days is whether or not Spain is emerging from the economic crisis. Citizens do not grade. But they want to know what the experts think in order to get their bearings. For this reason, it is interesting to know some of the indicators on which analysts base their conclusions. The first thing to do is to look for a synthesis and leading indicator. Synthesis, so that it represents all the factors that predict the Economics. Forward-looking, so that it predicts the future. The stock price is one of them, but it is influenced by so many external economic factors that it distorts the internal analysis. So others must be sought.

The clearest internal summary indicator is GDP (Gross Domestic Product) growth. Its problem is that it is historical. We know it quarterly and with a lag. In the first quarter of 2013, GDP went down. The Minister of Economics, Luis de Guindos, expects that the second quarter will remain close to zero.

For that you need a leading indicator, forecasting the future. One of those available is the Fedea (Foundation of programs of study of Economics Applied) on economic activity. It consists of adding to the historical GDP data recent. Its designers have verified that its evolution is equal to that of the historical GDP, it serves to advance the analysis. Well, in recent months it has been rising, approaching the point from which the Economics grows. In January 2013 it scored -1.6; in February, -1.3; in April, -1.0; in May, -0.8 and in June, -0.7. And it will rise in July 2013 to -0.5 or higher. Which indicates that, although we are still in recession, it is close to breaching the break-even point, which would be zero. So this overall and leading indicator gives a good, but not definitive, feeling.

There are also sectoral indicators. Example: exports. Spain has always had a negative trade balance. But in April this year, for the first time, it had a surplus of 643 million. Spanish exports have been growing for months due to increased competitiveness.

Waiting for autumn

The indicator of most interest to the citizen is unemployment. There are two available data: registered unemployment and the EPA (survey of active population). Unemployment registered in the public services of employment has decreased the last four months: about 100,000 people throughout Spain in the month of June, more than in the same month of previous years. The EPA for the second quarter of 2013, to be published this week, is expected to indicate a drop in unemployment. But this data may be seasonal and we will have to wait until autumn to know if the jobs created are consolidated. For the time being, there will be a great tourist season encouraged, among other things, by the instability in Turkey and part of North Africa.

Other indicators are consumer confidence (ICC) and industrial production (IPI). The ICC, according to the CIS, increased 11 points in June, due to better economic expectations. Important in a Economics whose greatest current weakness is the drop in domestic consumption. This index also grew with respect to the same month of the previous year. Despite this, it is at 61.8 points, below the 100 points that mark the difference between a pessimistic and an optimistic mood. It is the same as the Fedea index, it is improving but there is still some way to go before it can be said to have recovered.

The IPI measures industrial activity, excluding construction. Its evolution has been favorable so far this year, although it declined in May. The most significant figure of its components is the positive growth of the capital goods sector. In other words, Spanish industry that serves other industry is increasing its production. This is solid growth, although in durable and consumer goods there is stagnation, due to the weakness of domestic consumption. Alongside this historical indicator is the INE's harmonized business confidence index (ICEA). As a leading indicator, it shows a rise between January and March 2013 (3.6 points), after four quarters of decline. This is good news.

Another index to take into account is inflation, the CPI. Although there has been some rebound in Spain, it is under control in the euro zone. This will allow the ECB to apply an expansive monetary policy. This is what it has announced. Interest rates will remain low and that favors growth.

Furthermore, in Spain, we cannot forget the effect of the global Economics having a dynamic export sector and a powerful tourism. The data that the international Economics is giving at the moment are mixed signals of growth and stagnation. The U.S. seems to be booming and the BRICS economies (Brazil, Russia, India, China and South Africa) are stagnating.

Conclusion: the indicators give hope, but also invite caution when it comes to forecasting a way out of the crisis final .