Bloomberg News

Spain Growth Beats Bank of Spain Estimate Even as Prices Fall

July 30, 2014

Spain retail sales

Shoppers carry their purchases in shopping bags in Madrid. Spanish retail sales rose in June from a year ago by 0.2 percent, INE said yesterday. That’s the third straight month it’s increased, and the longest period of gains since 2007. Photographer: Antonio Heredia/Bloomberg

Spanish second-quarter growth beat the Bank of Spain’s estimate as economists say domestic demand supported a recovery in the euro region’s fourth-largest economy even as prices fell this month.

The Madrid-based National Statistics Institute today said that gross domestic product rose 0.6 percent from the first quarter, more than the forecast of 0.5 percent released last week by the Bank of Spain. Consumer prices fell 0.3 percent from a year ago in July, INE said in a separate release.

“It’s rare for the Bank of Spain to be mistaken, even by a tenth,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “That suggests a marginally stronger momentum than expected.”

As domestic demand starts to recover from the deepest austerity measures in Spain’s democratic history, Prime Minister Mariano Rajoy is relying on the rebound to dent a 25 percent unemployment rate, the second-highest in the European Union.

“Growth could beat forecasts this year and next as domestic demand seems to recover, possibly supported by government incentives deployed in the run up to the next general election,” Ducrozet said.

Falling Prices

Economy Minister Luis de Guindos yesterday said the government expects the economy to grow 1.5 percent this year and 2 percent in 2015, faster than previously forecast. That will push unemployment lower than the 24.9 percent rate initially predicted for 2014, Guindos said. Details will be published in September, he said.

Stronger growth didn’t prevent prices from falling this month after stagnating in June. The 0.3 percent drop compares with the median forecast for a 0.1 percent decline in a Bloomberg survey of 16 economists.

“Spain still has a large output gap inherited from past weak growth,” said Jacques Cailloux, chief European economist at Nomura International Plc in London. “The cyclical upswing isn’t sufficient to close the gap and suppress disinflationary pressures, as shown by low wage inflation.”

German carmaker Opel this month said that its market share in Spain was the strongest since 2006 in the first half. Car sales in the country jumped 24 percent in June, the biggest increase among Europe’s five largest auto markets. As traffic on its Spanish toll roads reached the highest in seven years, Abertis Infraestructuras SA first-half profit rose 4.4 percent.

‘Sustainable Recovery’

“This is the beginning of a sustainable recovery,” said Miguel Cardoso Lecourtois, chief economist for Spain at Banco Bilbao Vizcaya Argentaria SA in Madrid. “The growth we’re seeing has mostly come from domestic consumption and from investment in machinery and equipment.”

Spanish retail sales rose in June from a year ago by 0.2 percent, INE said yesterday. That’s the third straight month it’s increased, and the longest period of gains since 2007.

Even so, companies including office supplier Adveo Group International SA (ADV) and airline Iberia (IAG) are still cutting jobs, more than two years since Rajoy overhauled labor rules to make it easier for companies to reduce headcount and wages.

“It’s clear that wages have fallen in Spain,” said Alfredo Arahuetes Garcia, head of the economy department at Pontificia Comillas University in Madrid, in a telephone interview. “The recovery will be very gradual with spending remaining soft as families dig into their savings.”

No Savings

Households had no savings in the first quarter for the first time since the start of the series in 2000, INE data showed on July 2. Gross available income fell 2.7 percent from a year ago while spending rose 1.9 percent, it said.

Optimism about Spain’s nascent recovery and investors’ search for additional yield amid unprecedented central-bank stimulus measures have fueled a rally in its stocks and bonds. Spain’s Ibex-35 index of leading companies is up 29 percent from a year ago while the Spanish Treasury is cutting back planned debt issuance amid record low borrowing costs.

The yield on Spain’s 10-year benchmark bond was at 2.47 percent at 10:17 a.m. in Madrid, compared with a euro-era high of 7.75 percent in July 2012, when the sovereign came close to losing access to financial markets after seeking a European bailout for its banks.

(An earlier version of this story was corrected to show the period in second paragraph is three months through June.)

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, Paul Gordon


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