Fitch: Regional GDP Growth Uneven in Spain

Fitch Ratings says in a new report that Spanish regional GDP growth patterns were uneven over the period 2008-2013.

Fitch analyses and compares regional GDP evolution in Spain over 2008-2013, as well as the methodological aspects that determine economic aggregates and the weight of the informal economy.

Overall, regions located in the southern half behaved worse than the whole of Spain while northern regions outperformed it. These latter regions have historically also shown higher GDP per capita than the national average. The GDP of Navarre - the best performer - declined by 3.86% over 2008-2013, compared with a decline of 5.96% for Spain.

Regional GDP growth varied widely compared with the national average over this period: La Rioja was the closest to Spain, with the disparity versus the country's performance tending to widen as one approaches the best (Navarre) and worst (Asturias) performers.

The contribution of the 17 regions to national GDP has been exceptionally stable over the long term, according to National Statistical Institute (INE) data, with the exception of Madrid, whose contribution increased by 118bp between 1995 and 2013. The weighting of the four largest regions in economic terms - Catalonia, Madrid, Andalusia and Valencia - in national GDP was unchanged over 2008-2013. Regarding its individual performance, Madrid's GDP growth pattern was singularly different from that of Spain, while the other three had more similar growth to the country.

The National Statistical Institute (INE) is responsible for calculating regional GDP in Spain, which is based on the national GDP aggregate estimate. Regional GDP estimates are reviewed on an annual basis over a five-year period, so the final estimate is released in the fifth year. A top-down approach is used, so that estimated total regional GDP matches national GDP. However, economic activities with no clear geographical delimitation and other technical difficulties in regional GDP aggregation make calculating GDP a complex issue. As a result, estimates for the same year and region in the annual series are often subject to revisions. While Fitch considers regional results as accurate and that they are accepted as a market consensus, the publication of GDP statistics would be better served with more information on the practical application of the methodology.

Fitch further notes that the official data do not capture the activity of the informal economy. Its definition makes it difficult to be measured, but recent, in-depth research on Spain has enabled it to be quantified at a regional level. Overall, the estimated weight of the underground economy in Spain's GDP in 2012 was 24.6%. The lack of records of such economic transactions means a net loss to public revenues, which is normally offset by higher fiscal pressure on tax contributors.

The informal sector is fairly homogeneous across regions but slightly more significant in the country's economically weaker southern regions. Furthermore, public authorities have implemented a series of initiatives since 2012 to capture these economic activities hidden from tax contribution.