Spanish Economy Grew 0.4% in First Quarter

Spanish growth accelerated in the first quarter as Prime Minister Mariano Rajoy called on the European Central Bank to support a recovery threatened by the euro’s appreciation and deflation concerns.

Gross domestic product expanded 0.4 percent from the fourth quarter, when it rose 0.2 percent, the Madrid-based Bank of Spain estimated in its monthly bulletin today. The data, which are preliminary, exceeded the 0.3 percent median estimate of 11 economists in Bloomberg News’s most recent survey on Spain. GDP rose 0.5 percent from a year ago, the central bank said.

“Faster growth is consistent with indicators showing job creation as well as stronger consumer confidence and industrial production,” said Victor Echevarria, an economist at BNP Paribas SA in London. “A continued improvement on the labor market and an increase in credit will be key for the expansion to continue.”

Rajoy says that the euro’s strength and declining inflation across the single currency bloc are sapping Spain’s competitiveness and this month called on ECB President Mario Draghi to tackle those problems. His government is counting on record exports to support a revival in domestic demand after the fourth-largest economy in the euro region last year contracted 1.2 percent in its second recession since 2008.

Growth Target

The first quarter performance means Spain is on track to post a 1.2 percent expansion this year, the Bank of Spain said. The government has targeted growth of 1 percent.

Investors are flocking back to the country as improving confidence in its economy helped push Spain’s five-year borrowing costs this month to below those of the U.S. for the first time since 2007. Stocks have surged, with the Ibex-35 index of leading companies gaining 6 percent this year.

Carrefour SA, France’s largest retailer, this month said that a 0.1 percent gain in same-store sales in Spain, its third-largest country by revenue after France and Brazil, helped offset weakness in Italy and China in the first quarter.

The Spanish Treasury, which today aims to sell as much as 5.5 billion euros ($7.6 billion) of bonds maturing in 2017, 2019 and 2024, will issue less than its planned net target of 65 billion euros this year as the cost of servicing debt has fallen while tax receipts are increasing, Economy Minister Luis de Guindos said yesterday.

Bond Yields

The yield on Spain’s 10-year bonds yesterday fell to the lowest in eight years at 3.039 percent, compared with a euro-era high of 7.75 percent in 2012, when the government had to seek European Union aid to bailout its banking sector. Spain now pays 152 basis points more than Germany to borrow for 10 years, compared with a peak of 650 points in 2012.

Rajoy still needs to battle a debt burden approaching 100 percent of economic output while inflation has slumped, with prices falling last month for the first time since 2009. Unemployment will remain close to 25 percent through 2015, the International Monetary Fund forecasts.

“There is a risk of deflation,” said Alfredo Arahuetes Garcia, head of the economy department at Pontificia Comillas University in Madrid. “Costs are being clamped down on everywhere and wages aren’t being raised.”

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