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Spanish PPI Drops Further

James Boston
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Spanish PPI Drops Further

Spain’s cost of production is continuing on it’s downward trajectory according to the latest Producer Price Index (PPI) data published this morning. The August year on year figures show a further fall in prices of -0.6% following on from the July drop of -0.5%, most forecasts were in the region -0.1%. This downward trend has been in place since the beginning of 2011 when PPI growth peaked at over 8%.

The Organization for Economic Cooperation and Development (OECD) recently gave the Spanish economy a welcome vote of confidence when it published it’s annual survey on the country’s economy earlier this month. The economic think tank credited Spain with undergoing a major economic turnaround since exiting recession in the second half of last year. Although only the last four quarters GDP growth results were positive, Spain has consistently improved it’s quarterly growth rate for the last seven straight quarters. Full year growth forecasts for 2014 and 2015 now stand 1.2% and 1.6% respectively although much of this depends on the Eurozone’s ability to avoid another recession, a situation that is in doubt.

The cost of debt servicing by the Spanish Government has fallen and this is making economic life easier for the authorities. The key driver for Spain’s growth however is coming from the export sector where the country has measurably increased it’s competitiveness level. This is evidenced by today’s PPI figures, however this improvement in competitiveness is coming largely from falling labour costs. The cost savings in the labour market are partly due to some basic reforms, but are also emanating from downward pressure due to the significantly high unemployment in the country. At almost 24.5% the rate of those out of work in Spain is easily more than twice that of the European Union average, more concerning is the fact that youth unemployment is currently running above 50%.

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