Feb. 27 (Bloomberg) -- The Spanish economy, the euro area’s fourth-largest, expanded less than initially estimated at the end of last year as public spending contracted.
Gross domestic product increased 0.2 percent in the fourth quarter from the previous three months, the National Statistics Institute in Madrid said today. That’s less than the 0.3 percent growth reported by INE on Jan. 30. Government expenditure declined 3.9 percent, undermining increases in private consumption and investment.
Prime Minister Mariano Rajoy is counting on an economic upturn this year to tackle one of the European Union’s largest budget deficits, which has pushed government debt close to 100 percent of GDP. Six years after the end of a real estate boom, unemployment remains above 25 percent.
Still, household spending grew 0.5 percent from the third quarter, when it expanded at the same rate, INE said, revising up its initial estimate of a 0.4 percent advance. Investment grew 0.7 percent in both quarters. Output contracted 1.2 percent in 2013 after shrinking 1.6 percent in 2012, INE said.
“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.”
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’s funding costs have dropped as investors return to its stocks and bonds. The Ibex-35 index of leading companies has gained 24 percent in the past year while the yield on the country’s 10-year benchmark bond fell four basis points to 3.50 percent at 11:50 a.m. in Madrid. That compares with a euro-era high of 7.75 percent in 2012, when the nation had to seek an EU rescue for its banks.
“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.”
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.
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.
Spain is showing promising signs, Ian Cheshire, chief executive officer of Europe’s largest home-improvement retailer Kingfisher Plc, said last month. France’s second-biggest carmaker Renault SA’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.
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