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Spain: The Running Of The Bulls May Be Slowing


Business Outlook: Spain

Spain: The Running of the Bulls May Be Slowing

Spain's economic boom may be starting to fade, as growth in the euro zone's fourth-largest economy falls victim to the same forces that are beginning to hit near-term growth prospects in Europe generally.

Spain's third-quarter gross domestic product, which increased 0.9% from the second quarter and 4.1% from a year ago, continued to exceed the euro zone's overall pace, which showed comparable third-quarter gains of 0.7% and 3.4%, respectively. Spain's boom, led by household spending and construction, had been powered by a steep drop in interest rates, to record lows, in the runup to its entry into the euro zone.

Like its neighbors, however, Spain's domestic demand is now softening, led by slower growth in consumer spending. That's the result of higher interest rates and oil prices, which are squeezing household buying power, not to mention the recent sharp drop in the Spanish stock market. Although construction spending continued to grow strongly in the third quarter, consumer outlays slowed, growing 4% compared with a year ago and down from 4.6% in the second quarter.

That's still a healthy pace, but further slowing showed up in the fourth quarter. Industrial production in October rose a less-than-expected 0.8% from September, held back by a 0.6% drop in output of consumer goods. Recent data on sales of cars and retail goods have looked soft, and some pullback in housing activity is likely as well. Imports are set to slow with domestic demand, but export gains will diminish as well, amid cooler global growth. The Bank of Spain is forecasting growth of 4% in 2000 and 3.6% in 2001, but most private analysts think the 2001 projection is overly optimistic.

One plus for slower growth is that it will reduce concern that the economy is overheating. Inflation in November was 4.1%, well above the 2.9% euro zone average and close to a five-year high. On the downside, further declines in Spain's jobless rate, the highest in the euro zone at 13.6% in October, will be harder to come by.By James C. Cooper & Kathleen MadiganReturn to top

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