Spain’s Economic Growth Slows as Rajoy Gets Closer to Power

  • Gross domestic product expands 0.7% in third quarter
  • Rajoy may take office this week as Socialists drop veto

Spanish economic growth slowed in the third quarter as Acting Prime Minister Mariano Rajoy moves closer to forming a government after 10 months stuck in deadlock.

Output grew 0.7 percent in the three months through September, after expanding 0.8 percent in the second quarter, the Madrid-based National Statistics Office said Friday in a preliminary release. That matches the median estimate in a Bloomberg survey of 24 economists. From a year ago, the economy expanded 3.2 percent.

While the report didn’t break down GDP components, economists say sustained consumer strength and export activity helped maintain the pace of growth, as the impact of past reforms and one-off stimulus such as lower oil prices fades. Data on Thursday showed the nation’s unemployment rate fell to the lowest in more than six years in the third quarter, although the bulk of the new jobs were short-term contracts.

“Consumption should remain the key engine of growth for the quarter as the number and quality of jobs improve,” said Geoffrey Minne, an economist at ING Bank in Brussels. “Net exports should also be a positive driver, while private investment has probably reached its peak and the effect of reforms progressively fade. Even so, the outlook is positive.”

After two inconclusive elections, Rajoy looks set to secure a second term in office after the Socialist party, the second biggest force in parliament, lifted a veto on his candidacy on Sunday in an historic u-turn decision. Rajoy faces a confidence vote this week which should culminate with the 61-year-old being appointed prime minister by parliament on Saturday.

Inflation Rate

A separate release showed consumer prices on an EU-harmonized basis rose 0.5 percent in October from a year earlier, marking the fastest pace in more than three years and reversing a trend that had seen prices stuck at zero or lower. The statistics office said the figures, which are preliminary, were mostly due to an increase in energy prices and utility bills.

While the economy has shown resilience, expanding steadily since it emerged from recession in 2013, the Bank of Spain sees risks of fiscal slippages due to the lack of reforms even as the nation grows, calling on the next administration to take on restrictive measures to curb public spending. Once in office, Rajoy faces an uphill battle to approve a budget for 2017 for which he’ll need the support of the Socialists.

Spain faces demands from the European Commission, which oversees national budgets, to narrow its public deficit to 4.6 percent of output this year and 3.1 percent in 2017. The nation narrowly avoided a fine for missing its deficit-reduction goal last year by almost 1 percentage point. A decision to freeze structural EU funds to Spain over its budget infractions is still being considered.

— With assistance by Andre Tartar, and Ainhoa Goyeneche

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