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Spain’s PPI Falls Further

James Boston
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Spain’s PPI Falls Further

The Spanish National Institute for Statistics has just released the Producer Price Index for the month of May, year on year this figure has fallen -0.4% compared to a just -0.2% in the month of April.

Spain, like many of the Eurozones recovering economies is in need of some stimulus measures to gain enough momentum to take it’s economy clear of recession and firmly onto a recovery path. Given the nature of the recent economic crises and it’s roots in the banking industry it makes sense that monetary stimulus is utilized in order get economies back on track. The drip nature of such monetary stimulus is however proving ineffective for many of Europe’s periphery economies.

The European Central Bank (ECB) has been forced into a slow and cautious approach as it attempts to do well by a multitude of economies at different stages in the growth cycle. This is a source of frustration for the economic authorities in the various individual member states of the Eurozone.

EU Governments however still maintain control over several domestic economic instruments, the most powerful of which is fiscal policy. In this regard, Spain last week announced a sweeping range of tax cuts in an effort to inject a fiscal stimulus into it’s economy. The Spanish Government has pledged a 5% cut in corporate taxes from 30% to 25% and a table of income tax reductions that would see the average worker’s tax bill reduced by an estimated 12% per annum.

Unlike many EU countries however Spain has the scope to take these measures for two important reasons. Firstly, public debt is running at 93% of GDP, this is not ideal but it does provide a little room for an attempt at a stimulus program. Secondly, the size of the Spanish economy, and the more importantly the multiplier which determines what proportion of additional income is spend domestically, offers a heightened chance for the fiscal stimulus to result in a successful boost to the economy.

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