Spain Exits Two-Year Recession as Rajoy Seeks RecoveryAngeline Benoit
Spain’s two-year recession ended in the third quarter, underpinning Prime Minister Mariano Rajoy’s bet that exports can reboot the euro region’s fourth-largest economy.
Gross domestic product rose 0.1 percent from the second quarter, when it declined 0.1 percent, the Madrid-based National Statistics Institute said today. That matched the Bank of Spain’s estimate on Oct. 23. Inflation in October was 0.1 percent, the least since 2009, INE said in a separate release.
Exports are the only growth driver left to Spain as Rajoy imposes the deepest budget cuts in its democratic history amid a 26 percent jobless rate. Rajoy has pledged to stabilize the government’s debt load by the end of his term in 2015. Spain’s debt ratio has more than doubled since the nation started fighting a recession in 2008.
“This is an important staging post in what will be a slow but steady recovery,” Timo del Carpio, London-based economist at RBC Capital Markets, wrote in a note today. “The latest data, including more recent survey indicators, suggest the pick-up in growth this quarter is not ephemeral.”
Retail sales increased in September for the first time since 2010. Carrefour SA Chief Financial Officer Pierre-Jean Sivignon said on Oct. 17 there are signs of stabilization in the country. The Bank of Spain said last week that private consumption grew 0.1 percent in the third quarter while investment continued to decline.
The number of overseas visits to Spain through September reached 48.8 million, its highest level for the nine-month period since at least 2000.
“Spain has succeeded in regaining lost confidence in its economy,” Rajoy told lawmakers in Madrid today. “We are now on the right track.” Dutch Finance Minister Jeroen Dijsselbloem, who is also head of the group of euro-area finance ministers, said in a Frankfurter Allgemeine Zeitung interview that Spain won’t need further European Union aid for its banks.
Still, Rajoy is depending on demand elsewhere as austerity continues to hold back the domestic economy. EU peers have given the country 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.
“The end of a long and second recession isn’t enough to brand Spain as better off,” David Haugh, head of the Spain desk at the Paris-based Organization for Economic Co-operation and Development, said in an interview. “In a globalized world, it needs a more knowledge-intensive economy to pay the high wages even low-skilled people had during the construction boom.”
Rajoy has benefited from a market rally that has more than halved the gap between its 10-year borrowing costs and Germany’s in the past year. The yield on Spain’s 10-year benchmark bond fell by 1 basis points to 4.04 percent at 10:25 a.m. in Madrid, compared with a euro-era record of 7.75 percent in July 2012.
Spain’s Ibex-35 index of leading companies, which has risen 21 percent this year, gained 0.8 percent today. Among investors lured by low valuations and high returns compared with the rest of the world, Microsoft Corp. founder Bill Gates bought a 6 percent stake in Spanish builder Fomento de Construcciones & Contratas SA on Oct. 21.
“Spain must continue on the path of structural reforms and fiscal consolidation,” European Central Bank Governing Council member Luis Maria Linde, also governor of the Bank of Spain, said on Oct. 23. While third-quarter data suggest an economic recovery is under way, “nothing is guaranteed,” he said.