Spanish Economy Stalled in Third Quarter as Borrowing Costs Rose to Record
Spanish Economy Stalls as Borrowing Costs Surge to Record
Denis Doyle/Bloomberg
Shipping containers stand on the dockside at the Total Terminal International at Algeciras port in Algeciras.
Shipping containers stand on the dockside at the Total Terminal International at Algeciras port in Algeciras. Photographer: Denis Doyle/Bloomberg
Spain’s economy stalled in the third quarter, undermining the country’s efforts to shield itself from the sovereign debt crisis after Spanish and Italian borrowing costs surged to records.
Gross domestic product was unchanged from the previous quarter, when it expanded 0.2 percent, the National Statistics Institute said today in an e-mailed statement in Madrid. From a year earlier, the economy expanded 0.8 percent. The Bank of Spain estimated on Oct. 31 that the economy stalled in the third quarter and grew 0.7 percent on the year.
The slowdown threatens Spain’s budget-deficit goals, the European Commission said yesterday, meaning the government that emerges from the Nov. 20 general election may have to accelerate spending cuts to prevent the nation becoming the next victim of the debt crisis. The People’s Party, which polls show will win, has pledged to regain Spain’s AAA rating and tame borrowing costs without raising taxes or cutting pensions.
The economic figures “add to our view that Spain will struggle and is likely to fall back into recession, if not in the fourth quarter then early next year,” said Ben May, a European economist at Capital Economics in London. “We’ve got unemployment going above 25 percent.”
The extra yield on Spanish 10-year bonds compared with German equivalents rose to 408.8 basis points today, from 408.6 yesterday. Spain pays 5.9 percent to borrow for 10 years, the highest since Aug. 5, even as the European Central Bank supports the market with bond purchases.
Commission Forecast
Spain’s economy will grow 0.7 percent this year and next, the Brussels-based commission forecast.
It said the “emergence of a less favorable macroeconomic scenario” means the 2011 deficit will be 6.6 percent of GDP, instead of the 6 percent targeted. A cooling recovery will also postpone the reduction of a 23 percent unemployment rate, the European Union’s highest, and increase the relative weight of the nation’s debt burden, according to the commission.
PP leader Mariano Rajoy won’t stray from the 2012 deficit target of 4.4 percent of GDP “under any circumstances,” he said on Sept. 15. He pledges tax breaks for small companies and an overhaul of the financial system to steer the economy back to growth.
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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