Spanish retail shrinks as VAT rise fades and deflation takes a grip

Mon 31st Mar 2014

The latest Spanish annual retails sales figures showed a reversal of a temporary recent uplift.  This drop off was partially down to residual impact of the September 2012 Spanish VAT raise from 18% to 21%.

Following three successive years of decline since 2010, Spanish consumer spend in the shops had been picking up.  However, these latest figures show a return to the steady decline linked to stubborn, high unemployment and austerity measures of the government.

The brief respite since September 2013 was actually a bounce from the September 2012 VAT rise dropping out of the annual calculations.

There was also a drop in the retail price index measure of inflation for February of 0.3%, giving rise to worries that the problem will worsen with shoppers postponing non-essential expenditure as they expect further price discounts.  The same problem dogged Japan for almost twenty years.

The 2012 Spanish VAT rise was the second austerity indirect tax hike – Spain increased its VAT rate from 16% to 18% in 2010.  Spain started the 2007 financial crisis with one of the lowest VAT rates in Europe at 16%.  However, it is now close to the average EU VAT rate of 21.6%.