Is the Spanish Economic Crisis Really "Fading"?

Until this week, it seems Spain's economy was the poster child for unemployment among its young people, never mind of a Europe mired in a nasty recession. Well, all of a sudden, it seems things have turned around - at least that's the story told by Bloomberg.

Let's see if we can learn whether things really are looking up in Spain, along with a couple of lessons about the perils of believing what you read in the financial press. We'll do that by parsing through some of this article.

The story focuses on a company of 17 people that decided to find clients outside Spain when things really turned down in 2010.

Victor Alberola Salcedo was shocked when the construction of a suburban Madrid train line was halted in 2010, terminating a contract for his 17-person company. It brought home the reality of the worst economy in his country’s more than 30 years of democracy.

Mr. Salcedo saved his company and didn't have to lay off any of his staff. So far, a story with a happy ending. Hats off to Mr. Salcedo.

Their success also is forging a path for the euro region’s fourth-largest economy to emerge from a sixth year of recession.

Of course, the author doesn't really mean that this small company's success is leading Spain out of the wilderness.

Spanish exports climbed to a record 223 billion euros ($291 billion) last year as a drought in orders at home pushed companies to upgrade products and go abroad.

Indeed, Ireland and Portugal also saw increased exports.

The “painful” reforms undertaken by debt-strapped countries “are starting to bear fruit,” European Central Bank President Mario Draghi said in a May 23 speech in London. It’s visible in “the impressive improvement in export performance in Ireland, Spain and Portugal.”

Okay, so some percentage of companies in these countries exported more goods than they did last year. But will that be enough to address the massive unemployment, loss of income and dwindling of wealth suffered by the common people of these countries. Well, not quite - at least not yet. Here's the situation in Spain:

Households’ income from wages fell 8.5 percent in the last quarter of 2012 from a year before, pushing their savings rate down to 13 percent from 16 percent. Retail sales have declined every month since July 2010; mortgage lending since August 2007.

We are then treated to a series of anecdotes about various companies that have experienced increased sales, as well as comments about how some Spaniards realize they need to look for new ways to market their products:

“Even for olive oil or wine, we’ve realized that to sell ourselves, you have to make yourself different from your neighbor.”

But, really, is such a realization all that profound? Isn't it just common sense? What prevented Spaniards in the past from such a realization? Was it complacency? Whatever the reason, the idea of differentiating your product is really pretty basic stuff, and not the stuff that, by itself, one might reasonably think leads to economic recovery. Even when combined with other factors cited - opening offices in foreign companies to sell goods in emerging markets, creating "value-added" products (whatever exactly that means), realizing that development of technology has lagged the rest of the world - all these factors don't really seem to add up to the headline at the top of this article:

Spain’s Crisis Fades as Exports Transform Country

Now doesn't this strike you as a bit exaggerated? Hopeful signs maybe, but "crisis fades" implies a lot more than that.

Indeed, we also learn that, despite the euro value of last year's exports being the highest on record, and despite a trade surplus (exports exceeding imports) in March,  

The March trade surplus was driven by a 15 percent import drop as households cut spending. Foreign sales rose 2 percent and first-quarter exports fell at the fastest pace in a year. 

In other words, people stopped buying imported products, which lead to a drop in imports - hardly good economic news. So exports exceeded imports (trade surplus) because imports declined, because Spaniards spending has declined, which is only logical given that, as we saw above, both household income and the savings rate has continued to decline. And somehow this equates to signs of economic turnaround?

The headline may look good, but this article hasn't backed up the claim. I fear it's yet another of so many examples of the financial press grasping at straws in an attempt to make things look better than they are and to thereby cause us all to "feel better." Is the hope that if we all feel good, we'll run out and spend like drunken sailors? I don't know. What I do know is that delusional thinking - which this article isn't too far from, never leads to any good result.