Spain Ends Two-Year Recession Amid Effort to Add JobsAngeline Benoit
Spain emerged from a two-year recession in the third quarter, strengthening Prime Minister Mariano Rajoy’s efforts to repair the nation’s finances and reduce the 26 percent jobless rate.
Gross domestic product expanded 0.1 percent from the second quarter, when it shrank 0.1 percent, and fell 1.2 percent from a year ago, the Madrid-based Bank of Spain estimated in its monthly bulletin today. The data, which are preliminary, matched the median estimate of 37 economists in a Bloomberg News monthly survey.
Spain is crawling out of its second recession since 2008 as foreign investors are returning to the nation’s bond and stock markets. Signs of export-led economic growth may bolster Rajoy, half-way through his four-year term, as he tries to convince Spaniards that his unpopular austerity policies will allow the nation to leave the sovereign debt crisis behind it.
“We are optimistic on the euro periphery as a whole and Spain in particular,” said Robert Wood, an economist at Berenberg Bank, which forecasts growth of as much as 1.4 percent in 2014. “The country has made big structural changes, it’s been engaged in a lot of deficit reduction, business sentiment is improving and unemployment is probably close to a peak.”
Rajoy said today the recovery from the crisis, which destroyed 3.8 million jobs from the peak of the debt-fueled boom, would be “slow and gradual.”
Growth was driven by overseas sales as domestic demand fell 0.3 percent, the Bank of Spain said today. The decline in investment slowed and private consumption grew 0.1 percent from the previous quarter, when it was unchanged.
The spread between Spain’s 10-year borrowing costs and Germany’s has narrowed to less than half its peak in July 2012 and the government sold a new 30-year bond this month for the first time since 2009. The 10-year yield fell 6 basis points from yesterday to 4.15 percent at 11:.42 a.m. in Madrid, compared with a euro-era high of 7.75 percent last year.
Stocks have surged, with the Ibex-35 index of leading companies gaining 20 percent this year, and Banco Santander SA Chairman Emilio Botin said last week in New York “everyone” was interested in investing in Spain. Microsoft Corp. founder Bill Gates added to the optimism on Oct. 21 by buying a 6 percent stake in Spanish builder Fomento de Construcciones & Contratas SA, while Carrefour SA Chief Financial Officer Pierre-Jean Sivignon said last week there are signs of stabilization in Spain.
“A positive figure for Spain is a big deal from a psychological point of view because it’s the first in a number of quarters,” Ben May, a European economist at Capital Economics in London, said in a telephone interview.
Rajoy still needs to battle a debt burden that will approach 100 percent of economic output next year and the 56 percent youth jobless rate. Unemployment will remain above 25 percent until 2018, the International Monetary Fund forecasts.
In the three months through September, the decline in employment slowed “significantly” to 0.1 percent amid the country’s peak tourism season, the Bank of Spain said. The number of tourist visits through September reached 48.8 million, its highest level for the nine-month period since at least 2000, Spain’s tourism institute said yesterday.
Rajoy is depending on exports to drive growth as austerity continues to hold back domestic demand. European Union peers have given him until 2016 to bring the deficit, which was the biggest in the euro region at 11 percent of GDP last year, to within the bloc’s 3 percent limit, amid the deepest cuts in Spain’s democratic history.
“In the grand scheme of things, it’s not going to be enough to solve Spain’s existing problems as companies need a period of reasonably solid growth to hire and that’ll take a while,” May said.
Spanish export growth is slowing, data from the Economy Ministry showed today. Exports rose 3.8 percent in August from a year earlier, compared with a pace of 8 percent in the first half.
While Budget Minister Cristobal Montoro yesterday said Spain is close to generating enough growth to create jobs, the IEE, a research institute linked to the country’s largest business lobby CEOE, this week called on the government to deepen spending cuts and lower taxes to help companies.
Economists surveyed by Bloomberg forecast unemployment in the three months through September will decline to 26.1 percent from 26.3 percent. The National Statistics Institute will publish the quarterly data tomorrow at 9 a.m.