Spain Jan. Industrial Production Falls Less Than Expected

Spanish industrial output declined less than economists expected in January, tempering concerns that the recession may be deepening.

Production at factories, refineries and mines adjusted for the number of working days fell 5 percent from a year earlier, after declining a revised 7.1 percent in December, the National Statistics Institute in Madrid said in an e-mailed statement today. That compared with the median estimate of a 6 percent drop in a Bloomberg News survey of five economists. Monthly output was 42 percent below its May 2008 peak.

“It’s not a great outcome, but it shows some recovery,” Ricardo Santos, an economist at BNP Paribas in London, said in a telephone interview. “Everything related to exports is reaching a trough.”

Prime Minister Mariano Rajoy is seeking to convince investors he can return the euro area’s fourth-biggest economy to growth after overshooting his budget deficit target by more than 50 percent last year. The European Commission sees 2013 output contracting almost three times the government’s 0.5 percent forecast.

Yields Fall

Spanish 10-year benchmark bonds extended gains today, pushing the yield on the securities to the lowest in more than two years. It fell as low as 4.745 percent at 2:42 p.m. in Madrid, the lowest since Nov. 23, 2010, and traded at 4.75 percent at 3:04 p.m. That compares with a euro-era record of 7.75 percent in July, before the European Central Bank pledged support. The spread with similar German maturities was at 322 basis points.

“The level of Spain’s risk premium and the result of the last bond auctions are good news that show that Spain and its economic policy are gaining credibility,” Deputy Prime Minister Soraya Saenz de Santamaria told reporters in Madrid today following the weekly Cabinet meeting.

Deputy Economy Minister Fernando Jimenez Latorre last week said that the pace of Spain’s contraction will slow this quarter after output fell 0.8 percent in the previous three months, its sharpest drop since 2009, the most acute year of Spain’s economic crisis.

European Central Bank President Mario Draghi has said restarting the euro-region economy is his biggest challenge in 2013 after stabilizing the bloc’s financial system last year by pledging to backstop struggling sovereigns.

Bailout Averted

Spain escaped a full bailout in 2012 and its debt has sustained gains amid political turmoil in Italy as investors bet the ECB will prevent a fresh debt crisis in peripheral bond markets. Still, it’s home to a third of all jobless in the monetary union and its unemployment rate is seen rising to a record high of 27 percent this year.

The Bank of Spain said on Feb. 27 that the recession is extending into the first quarter amid weak domestic demand. Export growth slowed in the last quarter while indicators on tourism weakened in recent months, it said. The number of tourist visits fell 2.6 percent in January from a year earlier.

Power demand in February, corrected for calendar effects and temperature variations, dropped 5.5 percent from a year earlier, data from grid operator Red Electrica Corp. showed last week. That was the biggest decline in almost four years as factories dialed back operations and domestic consumption fell.

Services Sector

The Spanish services sector moved deeper into contraction in February, Markit Economics said this week, as its seasonally adjusted business activity index fell for the first time in five months. The figures “are a blow to those that saw the sector on a steady path back to recovery” as service providers cut jobs at the fastest pace since March 2009, Andrew Harker, an economist at Markit, wrote in the report.

“With so many indicators on the downside and worse than expected, the first quarter is very unlikely to yield an improvement,” said Maria Yolanda Fernandez Jurado, associate professor of the Faculty of Economic and Business Sciences at Madrid’s Universidad Pontificia Comillas. “Household spending and investment aren’t reacting and exports that were saving the day aren’t going that well anymore.”

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