Spanish Recession Eases as EU Shifts From Austerity Policies

Spain’s recession eased in the first quarter as the government pushed back its budget-deficit target to reduce a fiscal squeeze that has weighed on the economy.

Gross domestic product fell 0.5 percent from the fourth quarter, when it declined 0.8 percent, the Madrid-based National Statistics Institute said today. That matched the median forecast of 19 economists in a Bloomberg News survey. The central government budget deficit narrowed, the Budget Ministry said in a separate release.

“It’s much less severe than the final quarter of last year,” Economy Minister Luis de Guindos said in a radio interview today. “All the leading indicators for the Spanish economy are signaling recovery.”

A six-year slump has pushed the jobless rate to a record 27 percent, curbing domestic demand and fueling anti-European sentiment among some voters who blame the European Commission for public-spending cuts. Unemployment will barely decline over the next three years, the government said last week, as it announced it will delay its timetable for narrowing the deficit to within the European Union limit.

Deficit Shrinking

The central government’s budget shortfall shrank to 1.6 percent of GDP in the first three months compared with 2 percent in the year-earlier period, the Budget Ministry said. The statistics institute will publish a breakdown of the GDP numbers on May 30.

“Domestic demand is likely to have been the main reason for the fall” in first-quarter GDP, Ricardo Santos, an economist at BNP Paribas in London, said in a note to clients. “Exports should have continued to increase, albeit at a much slower pace.”

Spain’s current account deficit narrowed to 1.3 billion euros ($1.7 billion) in February from 2.6 billion euros in January, the Bank of Spain said in a separate release today. De Guindos forecast that the country will post a current account surplus of 2 percent to 3 percent of GDP this year.

“This is something that has never happened in Spain,” he said.

Investors’ commitment to Spain is still fluctuating. Some 1.1 billion euros of portfolio investment left the country in February as Italy’s inconclusive election triggered a spike in bond spreads, the Bank of Spain said. Spain received 10.3 billion euros of inflows during the previous month.

Euro-Area Data

The first-quarter Spanish GDP figure matches the estimate published by the central bank in its monthly bulletin on April 23. The 17-nation euro economy shrank 0.1 percent in the quarter, according to a Bloomberg survey published on April 11. Those figures will be released on May 15.

Spanish Prime Minister Mariano Rajoy on April 26 unveiled new measures to boost credit to smaller companies and cut bureaucracy. His cabinet also approved a plan to reduce a budget gap of 10.6 percent of GDP to within the EU limit of 3 percent by 2016 instead of 2014. The commission endorsed the plan in a statement on its website.

With the euro area in its second year of recession, officials in Brussels and Berlin are backing away from austerity-first policies amid criticism from institutions including the International Monetary Fund.

German Finance Minister Wolfgang Schaeuble, a leading proponent of budget discipline, yesterday announced a plan to boost investment in Spain.

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