July 26, 2007
The current woes in the US housing market have also drawn attention to the situation in Spain. The reason for this is that is not hard to see: There are striking similarities between the two countries with respect to the development in both house prices and construction activity over recent years. The current problems in the US market for Residential Mortgage Backed Securities (RMBS) have also been mirrored – if to a lesser extent – in the market for Spanish Cédulas where spreads have widened since the start of this year. Furthermore stock prices – measured on a total return basis – also seem to be discounting some kind of underperformance of the Spanish economy to come: While Germany's DAX30 has risen by 20 % since the start of 2007 and EuroStoxx50 by 11 %, Spain's IBEX35 has gained a relatively meagre 6 %. The consensus of economic forecasters puts the economic outlook for Spain at a rate of real GDP growth at 3.8 % for 2007 and 3.0 % for 2008. That would be some deceleration but not a lot below the average rate of expansion by 3.4 % per annum for the 2001 to 2006 period.