Bloomberg News

Spanish Economy Stalls, Weakening Fight to Stem Surge in Yields

November 16, 2011

Nov. 16 (Bloomberg) -- Spain’s economic growth stalled in the third quarter, as export growth slowed, undermining the country’s efforts to stem a surge in borrowing costs to record highs.

Gross domestic product was unchanged from the previous quarter, when it expanded 0.2 percent, the Madrid-based National Statistics Institute said today, confirming a Nov. 11 estimate. From a year earlier, the economy expanded 0.8 percent. Household spending rose 0.4 percent from a year earlier, after contracting in the previous quarter, and exports grew 8.1 percent from a year earlier, slowing from 8.7 percent in the second quarter.

The faltering recovery and surge in unemployment to 23 percent may make it harder for Spain to reach its budget-deficit goals, adding pressure on the government that emerges from the Nov. 20 general election to accelerate spending cuts. The euro- area economy is also struggling, with data yesterday showing it failed to accelerate in the third quarter.

The People’s Party, which polls indicate will win the election, has pledged to regain Spain’s AAA rating and tame borrowing costs without raising taxes or cutting pensions. The party, led by Mariano Rajoy, has promised to cut “superfluous” spending, without specifying where.

The yield on Spain’s 10-year benchmark bond fell 2 basis points to 6.318 percent today. The gap over German yields, which widened yesterday to a euro-era high, was 453 basis points. At an auction yesterday, Spain paid 5.02 percent to borrow for one year, more than it was paying on 10-year debt at the start of October.

Spain’s economy will grow 0.7 percent this year and next, the European Commission forecast on Nov. 10. It said the “emergence of a less favorable macroeconomic scenario” means the country’s 2011 deficit will be 6.6 percent of GDP, instead of the 6 percent targeted. A cooling recovery will also postpone the reduction of the unemployment rate, the European Union’s highest, and increase the relative weight of the nation’s debt burden, according to the commission.

--Editors: Fergal O’Brien, Eddie Buckle

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus