Spain’s economy expanded 0.2 percent in the fourth quarter, less than initially estimated, as public spending contracted.
That expansion compares with an earlier print of 0.3 percent, released by the National Statistics Institute in Madrid on Jan. 30. Government expenditure declined 3.9 percent in the final three months of 2013 from the previous quarter, while private consumption rose 0.5 percent and exports increased 0.8 percent.
Prime Minister Mariano Rajoy is counting on an economic recovery this year to tackle one of the European Union’s largest budget deficits, which has pushed government debt close to 100 percent of GDP. While unemployment remains at 25 percent six years after the end of a real estate boom, Spain’s funding costs have dropped as investors return to its stocks and bonds.
“Spain has become attractive again,” said Juan Jose Toribio, a professor at the IESE business school in Madrid and a former head of finance policy at the Economy Ministry. “Private-sector debt and labor costs have fallen, the banking sector has been cleaned up and fears it might leave the euro have been dispelled.”
The Ibex-35 index of leading companies has gained 26 percent in the past 12 months and Spanish borrowing costs have declined.
Investment funds are buying local real estate as house prices have fallen over 45 percent from their 2007 peak. Lar Espana Real Estate Socimi SA, which focuses on distressed assets, plans to sell 400 million euros ($547 million) of shares next month in Spain’s first new stock-market listing since 2011.
Meanwhile, the Economy Ministry said last week that the value of goods sold abroad rose in 2013 to the highest level since at least 1971. That follows an improvement in competitiveness which Rajoy claims credit for after he overhauled labor rules months after coming to power in 2012.
INE data today confirm Bank of Spain estimates that household spending is recovering after more than a year of declines amid the toughest austerity measures in Spain’s democratic history. Economists forecast it’ll rise 0.5 percent this year, generating growth for the first time in four years.
Spain is showing promising signs, Ian Cheshire, chief executive officer of Europe’s largest home-improvement retailer Kingfisher Plc (KGF), said last month. Meanwhile, France’s second-biggest carmaker Renault SA (RNO)’s Chief Performance Officer Jerome Stoll predicted the Spanish car market will grow between 3 percent and 4 percent in 2014 compared with last year.
“Domestic demand will drive growth going forward,” said Victor Echevarria, an economist at BNP Paribas SA in London. “As the labor market stabilizes, net trade’s contribution to growth will continue to fall and be replaced by domestic consumption.”
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