Spanish Growth Accelerates as Rajoy Says Six-Year Slump Over
Spanish growth accelerated in the last quarter, underscoring Prime Minister Mariano Rajoy’s assessment that the euro region’s fourth-largest economy has overcome a slump triggered by the end of real-estate boom.
The Madrid-based National Statistics Institute today said gross domestic product expanded 0.3 percent in the quarter ended Dec. 31 from the previous three months, increasing for a second straight quarter for the first time since 2011.
The figure, which matches the Bank of Spain’s Jan. 23 estimate, follows growth of 0.1 percent in the third quarter. Even so, GDP shrank 1.2 percent over the full year, after shedding 1.6 percent in 2012, INE said.
Rajoy is counting on household spending and investment to pick up in 2014 after record exports helped mitigate the impact of the deepest budget cuts in Spain’s democratic history last year. His government predicts an expansion of around 1 percent this year will help stabilize a debt load that has more than doubled since 2008.
“Spain’s steadily improving growth profile puts it on a strong footing going into the new year,” said Timo del Carpio, an economist at RBC Capital Markets in London. “The pace of activity picked up noticeably over the second half of last year, and more recent survey evidence suggests the new-found momentum will carry over.”
The Bank of Spain last week estimated that household spending grew 0.4 percent on the quarter in the three months through December, the same as in the third quarter. Investment accelerated to 1.1 percent, it said. Economists forecast private consumption will generate growth this year, starting with a 0.4 percent increase from a year ago in the first quarter, according to a Bloomberg News survey.
Spain is showing promising signs, Ian Cheshire, chief executive officer of Europe’s largest home-improvement retailer Kingfisher Plc (KGF), said in Davos last week. INE yesterday said Spanish December retail sales fell by 1 percent from a year ago, compared with a decline of 11.2 percent in December 2012. Sales increased in September and November, snapping more than three years of uninterrupted declines.
“Retail sales adjusted in December after strong growth in earlier months,” said Victor Echevarria, an economist at BNP Paribas SA in London. “The data are consistent with a continued recovery in household consumption.”
Still, rebooting domestic demand means Rajoy must overcome the European Union’s second-highest jobless rate, which remained above 25 percent for a sixth quarter in the three months through December. The rate would be even higher had Rajoy not overhauled labor rules in 2012, according to an Organization for Economic Cooperation and Development report.
Business confidence has also improved as London-based Markit Economics said its manufacturing and services Purchasing Managers’ Indexes rose more than forecast in December, both being above the 50 threshold signaling an expansion. That’s after industrial output grew in November at its fastest speed since February 2011.
“Today, all leading economic indicators are positive,” Economy Minister Luis de Guindos told radio station COPE after INE published the data. “There are very clear signs of change in lending to the solvent part of the economy that can afford to borrow more.”
The Spanish car market will grow between 3 percent and 4 percent in 2014 compared with last year, France’s second-biggest carmaker Renault SA (RNO) Chief Performance Officer Jerome Stoll said on Jan. 21 after car sales in the country posted a fourth straight double-digit increase in December.
Optimism about Spain’s nascent recovery and investors’ search for additional yield amid unprecedented central bank stimulus measures have fueled a rally in its stocks and bonds. Even after an emerging-market selloff damped demand for higher-yielding assets last week, Spain’s Ibex-35 index of leading companies is up 15.5 percent from a year ago.
Meanwhile, the sovereign’s borrowing costs have dropped less than two years after it came close to losing access to financial markets, and had to seek a 41 billion-euro bailout for its banks from its European Union partners. The yield on Spain’s 10-year benchmark bond rose by two basis points to 3.73 percent at 10:02 a.m. in Madrid, compared with a euro-era high of 7.75 percent in July 2012.
Rajoy is counting on a lasting economic recovery to extend the rally and boost tax receipts as he battles what was the EU’s largest budget deficit in 2012 at 10.6 percent of GDP. EU peers have given the country until 2016 to bring the deficit within the bloc’s 3 percent limit.
“It’s clear that the economic situation will improve this year,” said Josep Comajuncosa Ferrer, an economics professor at Esade Business School in Barcelona. “Still, it is key for companies’ and families’ confidence in the economy to improve as unemployment will remain high.”
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