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Spain's 'Real' GDP Could Be 21% Lower Than Reported

Tyler Durden's picture


With Spanish unemployment surging, tax collection so low, and delinquent loans soaring (though understated due to shifts in the Sareb 'definition's which means an ~11% levels is more like ~14%), it is 'odd', as El Confidencial notes, that GDP has only modestly declined. The fact of the matter is - things do not add up and the following three charts highlight the dramatic divergences between official (government-supplied) data and synthetic (market-based) measures of activity in the construction, industrial, and services industries. Given these 'real' levels, El Confidencial suggests real Spanish GDP would be 21% lower than reported.


Via El Confidencial (Google Translated),

Regarding tax revenues as a percentage of GDP, in Germany between 2007 and 2011 (latest data available from the OECD) is increased by 1.4%, France 0.2%, Greece 1.3%, in Italy -0.3%, and -5.7% in Spain. In 2012, with a very strong tax increases, revenue in Spain as a percentage of GDP has risen only a few tenths.


As seen, in Greece, with similarly increased unemployment, GDP fell 16.5 points higher than in Spain. This official perspective is explained by saying that the job has been lost was very unproductive. However, input-output tables of national accounts it is clear that this is not true, then an explanation is not convincing.


Strange as it may seem, no one seems to fall on the most reasonable explanation of all these facts, it's just that the Spanish GDP measure and does not accurately reflect the level of economic activity. We can see then, taking the three major sectors of the economy: industry, services and construction. Let's compare synthetic indicators of activity (almost coincident with GDP) by sector of activity indicators that have historically shown better correlation.


Beginning with the construction, cement consumption compared with ISCOF (synthetic indicator of construction). As seen, the correlation was excellent until 2008, but has since lost and now the gap is about 8,000 million euros of quarterly GDP, thus real activity would be a third less reflected by ISCOF.

In industrials we compare the IPI (industrial production index) with the ISI (synthetic indicator of the industry). We find an excellent correlation to 2008. Since then, the quarterly gap equals about 8,000 billion quarterly GDP, or a fifth of the sector's activity.

The biggest difference is found in the services market. We compared the IASS deflated with the CPI (activity index for services) with the ISS (synthetic indicator of services). Once again there is a good correlation to 2008, accumulating since then a gap of about 42,000 million per quarter, or third sector activity.

If we assume that the other small items are properly GDP measures (non-market services, agriculture and taxes on imports, production and VAT), this would imply that real GDP would be right now 21% lower than reported.


If so, it would be perfectly explained three key facts of our economy:


1) Lower tax revenues. With the new GDP this would actually be 40% rather than 32%, about 3.3 points higher than in 2007, something quite compatible with heavy tax increases.


2) High level of unemployment. With the new GDP is explained also suffered tremendous increase in unemployment.


3) Business profits. According to the national accounts, corporate profits are at record highs, which is incompatible with the vast amount of bankruptcies and major problems they are having the vast majority of companies. It would also be absurd that maximum benefits companies have spent millions to lay off workers. That never happened. However, with the new GDP corporate profits would not be 7.5% higher than in 2007, as officially reported, but a 43% lower, which is also compatible with the situation observed in companies, particularly in small.

Still - taking a page out of the books of Chinese (and US) data manipulation, especially in the midst of a massive political scandal, we are not holding our breaths for the correction from the government...

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