Spanish Economy Slows in Third Quarter as Election Nears

  • Rajoy government forecasts growth of 3.3% for this year
  • Unemployment slowing declining, consumers driving economy

Spanish economic growth slowed in the third quarter, indicating the recovery may have peaked after the fastest expansion in eight years.

Output increased 0.8 percent from the previous three months, compared with 1 percent in the second quarter, the Madrid-based National Statistics Office said Friday. The figure matches the median estimate in a Bloomberg News survey of 12 economists. From a year ago, the economy expanded 3.4 percent.

While the report didn’t break down the components of GDP, economists see domestic demand cementing its position as the main driver of growth in Spain. The economy has expanded for nine straight quarters and the latest positive data come as Spaniards prepare for a general election in December that’s pitting conservative Prime Minister Mariano Rajoy against the Socialists and pro-market Ciudadanos. Polls show no party obtaining an overall majority.

“Our expectation is that domestic demand was the key driver again, while the external sector weighed down on growth,” said Gizem Kara, economist at BNP Paribas in London. “At this stage, we think the pace of growth has peaked and we’ll see a slowdown going into the fourth quarter.”

Considerable Dynamism

Initially driven by exports, the recovery has shifted gears as consumers benefit from cheaper energy prices, propping up disposable income, and the government cuts taxes. Coupled with falling unemployment, Spanish households have become more upbeat and retail sales rose at the fastest annual pace in nine months in September.

Even so, the Bank of Spain has pointed to a slight deceleration in household consumption at the end of the third quarter, although still maintaining considerable “dynamism.” It also said downside risks have increased due to external factors such as China’s slowdown.

Speaking on Onda Cero radio after the figures were released, Deputy Economy Minister Inigo Fernandez de Mesa said the trend for the Spanish economy remains positive, despite the slight deceleration in the third quarter, pointing out that on an annual basis the pace of growth remains above three percent.

“What really matters is that we continue growing above 3 percent, and we’re doing just that on annual terms,” he said. “Our growth projections are perfectly feasible.”

The government expects the economy to grow 3.3 percent this year and 3 percent in 2016. The European Commission has a slightly less optimistic outlook and sees expansion of 2.8 percent and 2.6 percent. It also expects the nation to miss its deficit targets in both years, with the shortfall remaining above EU limits.

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