Spanish Economic Growth Keeps Pace as Rajoy Seeks Budget

Updated on
  • Gross domestic product grew 0.7 percent in the third quarter
  • Rajoy administration faces task of approving budget for 2017

The Spanish economy maintained momentum in a 12th consecutive quarter of expansion, setting the stage for a contentious budget debate as Prime Minister Mariano Rajoy balances the need for deficit cutting measures with calls for a broader share of the recovery for Spaniards.

Gross domestic product expanded 0.7 percent in the three months through September, the Madrid-based National Statistics Office said Thursday, confirming an initial estimate. From a year ago, the Spanish economy grew 3.2 percent while adding about 499,000 new jobs.

Ten months of political deadlock, which stripped Rajoy’s government of the power to pass new legislation, haven’t undermined Spain’s position as one of the euro area’s fastest-growing economies. While the deadlock ended in October, Spain faces challenges such as reducing the second-highest unemployment rate in the European Union and narrowing its public deficit.

Household consumption expanded 0.6 percent, slightly down from the previous quarter, while public expenditure, which had been held back due to the 10-month impasse, accelerated 1 percent. Construction picked up 0.2 percent for the quarter, compared to a 0.5 percent expansion in previous three months. Investment tamed its pace of growth, rising just 0.3 percent, after jumping 1.9 percent in the second quarter.

“There was a deceleration in investment for the quarter as uncertainty pegged to the lack of government and the broader international context took a hit on business confidence,” said Estefania Ponte, research director at BNP Paribas Personal Investors in Madrid, who predicts growth of 3.2 percent in 2016. “Having said that, we expect a pick up going into the fourth quarter in investment and also exports.”

The data come as Rajoy moves to negotiate a budget for 2017 in a highly fragmented and hostile parliament. The 61-year old will have to balance demands from opposition parties calling for an increase in the minimum wage and a reduction of fees for the self-employed.

Meanwhile, there is renewed pressure from EU officials in Brussels to narrow the nation’s deficit after it escaped a fine over its budgetary deficit last year.

Budget Minister Cristobal Montoro ruled out further increases in the value-added tax on Wednesday. He said he will target instead the corporate sector, where the government is looking to close tax loopholes and eliminate some tax deductions.

The government already introduced a series of measures aimed at shoring up the nation’s coffers by making companies pay taxes up front.

Separately, Montoro said the nation’s 2017 spending ceiling will be lowered by 5 billion euros ($5.3 billion) compared to the 2016 plan. Setting the cap is the first step toward drafting a budget for public expenditures.

— With assistance by Ainhoa Goyeneche

(Updates with comment from economist from fifth paragraph.)
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