Macro-Spain: Worse Than Worst?

As it stands, all things remaining "equal" to where they are, right now.

Spain's Debt-to-GDP Ratio is projected (by the IMF) to rise to a peak of 101.4% during 2016, significantly higher than last year's (already above the Union Treaty's hard-ceiling) Ratio of 69.1%.

Meeting this "target" will require two things (at least), according to the IMF:

... the government completely eliminates its primary budget gap ... and ...

... the yield on the 'six-year' government bond does not rise above 4.37%.

Yep, that's all, no worries.

Indeed, the IMF says, if the Spanish government can, somehow, miraculously, find a way to run a budget SURPLUS ...

... then, and only then, will the Debt-to-GDP Ratio NOT RISE further above the 100%-crisis level already being forecast for the foreseeable future.

Note the "macro-assumptions" used in the latest IMF "update":

Spanish Primary Budget Balance, percentage of GDP:

2012 ... (-) 4.5%
2013 ... (-) 2.2%
2014 ... (-) 0.8%
2015 ... + 0.1%

Failure to meet these targets will send only serve to intensify the crisis.

And it gets even more "surreal."

The assumption that Spain can achieve the budget figures detailed above is predicated upon more assumptions, specifically as it relates to GDP.

The IMF had been projecting growth in GDP next year.

They recently changed that projection and the IMPF now expects Spanish GDP to contract by (-) 1.3% next year.

Is it us, or does that figure still seem to fall 'short' of the potential downside "mark" in the Spanish macro-economic situation ... really, only (-) 1.3% for next year?

We note similarly, the projection for the Spanish economy, as laid out in the Spanish Bank Stress Tests recently conducted by UK consultants Oliver Wyman, which pegs the decline in Spanish GDP during 2013 at (-) 2.2% ...

... under the WORST CASE "scenario."

Within the context of the Stress Test's assumed worst-case-scenario, Wyman projects that a decline of this magnitude in GDP would "contribute to" 270 billion EUR in "credit losses" for Spanish banks, creating a 60 billion EUR capital shortfall.

In other words, loan losses for banks expand, as the economy contracts.

But, what if the economy contracts by MORE than the WORST case?

It would not take "much."

In fact, on the basis of the data deluge unleashed on the Spanish markets on Thursday, we might well begin considering the "what ifs" linked to thoughts of a significantly WORSE than WORST case scenario.

First, before we even get to the most recent data, after dissecting the statistics published by the Bank of Spain (CB) we immediately spotlight the "revision" to the "old" July data, wherein the amount of loans that went bad during the month was jacked higher by +3.9 billion EUR, which took the Delinquency Rate (percentage of all loans) above 10% for the first time in the "modern era," pegged at 10.1%, revised higher from the originally reported July rate of 9.86%.

Now we come to the more recent data, for August, revealing another rise in the Delinquency Rate, to another new record high of 10.5%.

As the Spanish housing-mortgage-banking crisis takes on an "energy" of its own, defined by the parabolic ascent since the home-price bubble peaked in 2006.

Indeed, despite ALL of the "effort" from the ECB, the Spanish Bank Loan Delinquency Rate has risen to its current new high of 10.51%, from 7.84%, in just the eight months of this year.

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