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Can Spain stay out of crisis?

How Spain fares over the next few months will play a critical role in the euro zone debt crisis. It would be premature to conclude that Spain has turned a corner in dealing with its economic problems, says Ben May of Capital Economics.

The Spanish government may have to spend far more than is believed to restore confidence in the country's banks, and the economy faces strong headwinds, Mr. May says.

Spain's total financing needs until the end of 2013 stand at about €420-billion ($581-billion), compared with a total of about €270-billion for Ireland, Greece and Portugal.

"If Spain were to receive a bailout to cover its financing needs for this period, this, along with the support for Ireland and Portugal, would use up a large chunk of the €750-billion of available funds from the current EU/IMF bailout facilities," Mr. May says.

"While Spain may avoid needing financial support, there is a good chance that a bout of stagnation may result in it eventually seeking a bailout. Worryingly, given Spain's size, even this may lead to further political tensions and plunge the euro zone into a deeper crisis."

Gas eating into your food bill?

Half of our household spending on energy goes toward gasoline, and the recent price runups for gasoline and home heating oil will have an impact on overall consumer spending and the retail sector.

Current gas prices are inching closer to levels experienced in the 2008 oil shock and - in real terms - they are 30-per-cent higher than the level seen during the 1991 shock, CIBC World Markets economist Benjamin Tal says.

If the recent energy price increase is sustained over the course of 2011, it will be equivalent to a 7-per-cent increase in the average Canadian income tax bill, Mr. Tal figures.

High-end retailers should absorb this better than low-end retailers because high-income households spend less of their total budget on energy than low-income households, he says. The biggest impact will likely be felt in the food category because consumers substitute groceries for eating out. In the grocery stores, consumption of promotional items rises.

"On average, it is estimated that the 25-per-cent increase in gas prices will cut the net price paid per grocery item by 2-3 per cent," Mr. Tal says in a recent report.

Strong Chinese numbers stoke hope

China's appetite for global commodities continues apace, as shown by recent trade numbers reflecting China's manufacturing activity.

China now accounts for between 38 per cent and 48 per cent of global demand for various base metals and 21 per cent of bullion demand, say Brockhouse Cooper strategist Pierre Lapointe and economist Alex Bellefleur.

Any slowdown in consumption would have a marked impact not only on the commodities but also on stock indices in countries such as Australia, Canada, Russia, Norway and Brazil, they point out.

After slipping in February, Chinese exports have bounced back to near-record levels - $152.2-billion (U.S.).

"This is of the utmost importance for us as it signals that not only the Chinese domestic economy is doing great (manufacturers' exports at near-record levels) but also that the rest of the world is healthy (other countries are importing large amounts of Chinese goods)," the authors say in a recent report.

"The strong export numbers … reinforce our bullish stance on China," they write. "We reiterate our positive view on the Chinese economy and on commodities in general."

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