Spain Recession Eases as Consumers Offset Faltering Exports
Spain’s recession eased in the first quarter as domestic demand stabilized while exports, which the government says will drive the recovery of the euro-area’s fourth-largest economy, fell at the fastest pace in a year.
Gross domestic product fell 0.5 percent from the fourth quarter, in line with a first estimate on April 30, the Madrid-based National Statistics Institute said today. Output dropped 0.8 percent in the final three months of last year, the sharpest decline since 2009 when the global economy was plunged into a recession following the collapse of Lehman Brothers Holdings Inc.
The European Commission yesterday suggested giving Spain until 2016 to tame the largest budget deficit in the European Union. Spanish unemployment may rise to 28 percent next year, the Paris-based Organization for Economic Cooperation and Development also said yesterday, cutting its growth outlook for the nation.
“Imagining that other countries are going to solve our problems is a very optimistic view of the economic reality,” said Maria Yolanda Fernandez Jurado, associate professor in the Faculty of Economic and Business Sciences at Madrid’s Universidad Pontificia Comillas, in a telephone interview.
Household spending contracted 0.4 percent from the previous quarter, when it shrank 1.9 percent, while exports further dropped, by 1.3 percent after 0.9 percent.
“There’s no sign of a recovery: exports depend on other countries and one should be very prudent on domestic demand,” Jurado said. “The future is uncertain, especially given potential further tax increases and cuts in pensions.”
The yield on Spain’s 10-year benchmark bonds was little changed at 4.41 percent at 9:45 am in Madrid, while the spread with similar German maturities was stable at 2.9 percentage points. Spain’s 10-year borrowing costs have come down from a euro-era high of 7.75 percent in July, before the European Central Bank pledged to backstop the single currency.
Gamesa Corp. Tecnologica SA last week said it will dismiss 394 workers at its Spanish wind-turbine plants in Albacete, Tudela and Somozas. Renault SA’s chief operating officer Carlos Tavares said on May 14 that France’s second-largest car maker expects the European car market to shrink 5 percent this year.
Inflation in May, measured by EU criteria, accelerated to 1.8 percent from 1.5 percent in April, when the rate dropped to the lowest since February 2010, INE said in a separate release. That is more than the 1.7 percent median of 15 estimates in a Bloomberg survey.
Prime Minister Mariano Rajoy is counting on exports to fuel a return to growth in the second half. Household spending in Germany, the euro area’s first economy, rose 0.8 percent in the first quarter and the Bundesbank expects output to gather pace in the current quarter. The ECB this month cut its benchmark interest rate to a record low of 0.5 percent and President Mario Draghi said the central bank stands ready to act again if necessary.
“Fortunately, there has been a move from imposing unrealistic conditions toward a more gradual approach that doesn’t kill the patient,” Gilles Moec, co-chief European economist at Deutsche Bank AG in London, said in a telephone interview. “Spain has made big efforts to improve its competitiveness but it isn’t showing in GDP figures because global demand is depressed.”
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