Capital flees Spain as spending crumbles
Capital flight from Spain gathered pace in May with the rescue of one of the country’s biggest banks and crumbling consumer demand saw retail sales chalk up two straight years of declines in June.
Outflows rose to €41.3 billion, Bank of Spain data showed yesterday, as the government stepped in to prop up Bankia.
That dealt a further blow to already fragile investor confidence and triggered a European rescue worth up to €100 billion for the country’s lenders.
In all €163 billion – equivalent to around 16 per cent of economic output – left Spain between January and May, with domestic banks sending money abroad, foreign banks pulling out cash and mostly non-resident investors dumping domestic assets.
Spain’s struggling economy, which is expected to remain in recession well into next year, is at the centre of the eurozone debt crisis, and rising refinancing costs risk shutting the country out of international markets. Domestic demand has stalled since the crisis started four years ago, hitting the key service sector which accounts for around 70 per cent of the economy, while sky-high unemployment rates have further eroded consumer confidence.
Spanish retail sales fell by 5.2 per cent year-on-year on a calendar-adjusted basis in June, separate data showed yesterday, marking a 24th straight month of declines.
“These figures are proof that the Spanish economy continues in recession and a drop in retail sales could indicate a GDP contraction of around two per cent this year,” economist at Madrid broker M&G Valores Nicolas Lopez said.
Madrid requested help from Europe in June to recapitalise its banks, battered by the collapse of a decade-long real estate bubble in 2008 but the plan failed to calm investors for more than a few days.
Yesterday’s data showed domestic banks moved €31.9 billion out of the country in May. The headline figure compared with total outflows of €26.6 billion in April and a peak of €66 billion in March.
The premium investors pay to buy Spanish over German debt was at around 532 basis points yesterday, far below last week’s euro-era highs on hopes the European Central Bank will announce measures to help the beleaguered market.
Plummeting domestic demand was reflected in May current account data also published yesterday by the central bank and showing a deficit of €754 million, narrowing sharply from €3.4 billion in the same month of 2011. The gap shrank on a lower trade deficit as exports rose against falling imports, and a lower primary income deficit – the difference between money paid abroad and money received.
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Lawrence Fenech
Aug 1st 2012, 13:14
Don't worry big Spain little Malta is here to help you out.
Mark. Galea
Aug 1st 2012, 12:15
Same thing will happen here in Malta after next election - if PL win (and it is 99.9% they will do), most of the capital will leave the country. It happened, and will happen again. 5 lost years ... just to put an inexperienced boy at the helm ... but that is life ...
John Azzopoardi
Aug 1st 2012, 11:27
And how is Spain going to recover with 25% of unemployement...........And 160 or so Billion left the country. How can you get that money back. Europe is so doomed. Malta be careful. One mistake and the finanacial industry (those hedge funds and offshore banking accounts) in Malta will go the same way spain and other countries have gone. So politicians on both sides, be careful how conduct your campaign in the next few months. Investors will be watching.
Joseph Aquilina
Aug 1st 2012, 10:53
Spain is a clear example of how SOCIALISM destroys anything that comes across its path. The center-right government of former President Jose Maria AZNAR had made Spain one of the most successful countries in the EU if not the whole world. The AZNAR administration continued to advocate liberalization, privatization, and deregulation of the economy. Unemployment fell steadily under the AZNAR administration. Growth averaging more than 3% annually during 2003-07 was satisfactory given the background of a faltering European economy.
Then came the SOCIALIST ZAPATERO! and Spain became what it is today!! socialism (and when accompanied by liberalism its even worse) destroys any social value and in so doing destroys the country itself!! Then the people trust in CENTER-RIGHT CONSERVATIVE AND governments to bring the country back to its feet.
Christopher Camilleri
Aug 1st 2012, 18:56
You may be right in the case of Spain. However, you should keep in mind that in Greece, what happened is the exact opposite.
That is the Socialist Party had inherited a bankrupt country from a centre-right government which was ultimately voted out of office.
ben wood
Aug 2nd 2012, 01:51
I think we need to look at 'Socialism' in a regional way. for example scandinavian, northern europe, southern models are different. its societies which are different.Mediterranean examples
Used by Italy, Spain, Greece, Portugal, the Mediterranean model is similar to the Continental model, but focuses welfare on generous state-pensions. The labour market is inflexible with the same job protectionism as in the Continental model, but is not good at reducing poverty within the lower end of society.http://en.wikipedia.org/wiki/Social_Model#Mediterranean
Lets hope Europe does not follow USA models....
Please choose the reason of your report below: