Spain Probably Expanded 0.7% This Quarter, Central Bank Says

  • Bank of Spain cites resilient internal demand, job creation
  • Economy Minister Guindos says indicators show momentum in 4Q

Spain’s economy probably maintained its pace this quarter, supported by resilient internal demand and “intense” job creation, the country’s central bank said.

The Bank of Spain estimates that gross domestic product will show an increase in output of 0.7 percent in the three months through December, unchanged from the third quarter. The central bank noted the recovery continues to be bolstered by the strength of the nation’s internal spending push, pegged to more employment and favorable financing conditions for households. Corporate investment may also show signs of renewed dynamism after losing steam in the previous quarter, the institution added.

The central bank’s outlook released Wednesday follows a string of better than expected data including an index of services and a gauge of the manufacturing sector. Both of them beat analyst expectations for November and showed a pickup from the previous month, while labor costs fell sharply in the previous three-month period.

The latest health check on the Spanish economy comes as Prime Minister Mariano Rajoy seeks cross-party agreement to approve a budget for 2017. The Socialists, the historic rivals of Rajoy’s conservative People’s Party, have so far rejected supporting the government’s plans. Still the two parties have agreed on a series of measures including a minimum wage increase, corporate tax measures and a limit on national spending that are seen as prelude to a budget agreement.

In an interview on Tuesday, Economy Minister Luis de Guindos predicted the budget could be approved before the summer, while forecasting that the country’s fourth-quarter expansion could be in the region of 0.7 percent to 0.8 percent, or “slightly” stronger than the third quarter. Guindos said all available indicators have shown momentum and emphasized that political uncertainty had dissipated.

IMF Reforms

Even so, the International Monetary Fund called on Spain to pursue further reforms, tackle long-term unemployment and consider a revision of its sales tax rate to continue the recovery. The government has repeatedly rejected hiking taxes that could hurt the consumer-led recovery such as income and sales tax, targeting corporations instead.

The Bank of Spain’s latest estimate for the fourth quarter comes after saying it expects the nation to grow 3.2 percent this year while upgrading its estimate to 2.5 percent for next year, matching the government’s official projections.

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