Bloomberg News

Spain Growth Speeds Up as Consumer, Government Spending Rise

May 29, 2014

Growth gained momentum in the first quarter in Spain, the euro area’s fourth-largest economy, as household and government spending increased.

Gross domestic product increased 0.4 percent in the first quarter from the previous three months, the National Statistics Institute in Madrid said today, confirming its April 30 first estimate. That marked an acceleration from 0.2 percent in the fourth quarter of 2013.

Prime Minister Mariano Rajoy is counting on a recovery from a six-year slump to tackle the budget deficit amid a 25 percent jobless rate. While rating companies have revised their call on Spain’s ability to repay loans, its public debt load has more than doubled since 2007 to close to 100 percent of GDP.

“Spain’s economy will continue to grow faster than the majority of other euro-region members,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “It has achieved a greater share of necessary structural adjustments, such as private-sector deleveraging, and investment and household spending should join exports as growth drivers.”

Economy Minister Luis de Guindos said May 20 that leading indicators show Spain will expand at a similar pace this quarter. Deputy Economy Minister Fernando Jimenez Latorre said today the government expects the economy can sustain its growth rate.

“It confirms the change in the trend -- we’re growing,” Budget Minister Cristobal Montoro said today in comments broadcast by state television station RTVE.

Austerity Ease

As the ruling People’s Party government eases the toughest austerity measures in more than three decades, household spending grew 0.4 percent from the previous quarter, when it expanded 0.5 percent, INE said. Investment shrank 0.6 percent after gaining 0.7 percent in the previous three months, while government spending rose 4.4 percent.

Miami-based fast-food maker Burger King Worldwide Inc. said last month it has room to open more stores in Spain while Nissan Motor Co.’s chairman for Europe, Paul Willcox, said on May 5 that a big increase in headcount is coming this year at its Barcelona plant where it has started the production of an electric van.

Funding Costs

Rajoy, whose four-year mandate is due to end in 2015, has pledged to lower taxes starting from next year to boost domestic demand.

Economists predict household spending will rise 1.1 percent in 2014, helping the economy expand for the first time in three years. The European Commission forecasts growth of 1.1 percent this year and 2.1 percent next after a contraction of 1.2 percent in 2013.

The turnaround has pushed Spain’s funding costs to record lows as investors return to its stocks and bonds. The Ibex-35 index of leading companies has gained 8 percent this year while the yield on the country’s 10-year benchmark bond was at 2.84 percent at 2.13 p.m. in Madrid. That compares with a euro-era high of 7.75 percent in 2012, when the nation had to seek an EU rescue for its banks.

“Spanish debt is more attractive than that of other euro periphery countries because the country has undertaken reforms that can help exports,” said Jorge Garayo, a fixed-income strategist at Societe Generale SA in London. “Spain should benefit more from external global growth improving.”

The International Monetary Fund said this week that the country “has turned the corner” and called on the government to take further measures to make the labor market more dynamic and to overhaul taxes in a growth-friendly way.

“Spain has made some very significant reforms,” Robert Zoellick, chairman of Goldman Sachs Group Inc.’s international advisers and former president of the World Bank, said in an interview this month. “One of the challenges there will be sustainability, based on the politics of reforms.”

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Zoe Schneeweiss, Fergal O’Brien

Growth gained momentum in the first quarter in Spain, the euro area’s fourth-largest economy, as household and government spending increased. May 23 (Bloomberg) -- Moritz Kraemer, chief sovereign ratings officer at Standard & Poor's, discusses the upgrade in Spain's credit rating. He speaks from Frankfurt with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus