August 16, 2011 / 8:27 AM / 8 years ago

Spain growth rate slows, reviving slump fears

MADRID (Reuters) - Spain’s anaemic growth rate slowed further in the second quarter, data showed on Tuesday, reviving concerns the country could slip back into recession as a worsening economic backdrop impacts its main export markets.

A trader gestures in front of screens at the bourse in Madrid August 8, 2011. REUTERS/Andrea Comas

Gross domestic product grew 0.2 percent from the first quarter, down from growth of 0.3 percent a quarter earlier and for a 0.7 percent year-on-year expansion, the preliminary figures showed.

“The outlook does not look good. Leading indicators are turning down, and the composite PMI index is now in contraction territory,” economist at BNP Paribas Ken Wattret said.

“Exports have provided a boost but with the outlook deteriorating across the euro zone it is difficult to see Spain growing, with no offset from internal demand seen for some time.”

Spain has been in recession or close to stagnation for three years after a housing crash hobbled the key construction sector and domestic demand slumped as Spaniards cut up their credit cards, leaving only exports to hold up the economy.

Economists are split over whether another slump lies around the corner — a Reuters poll of eight showed three saw the economy shrinking for two straight quarters, the official definition of recession — but all see growth as being at best anaemic at least into 2012.

A full breakdown of second quarter GDP is due on Aug. 26.

Without exports, worth 30 percent of the economy in the first quarter of this year compared to 23 percent two years earlier — mostly to outperforming euro zone economies such as Germany — Spain would still be in recession.

“Exports have been an important driver, but it’s unreasonable to expect that pace of growth to continue,” economist at Capital Economics Ben May said.

As expansion of Spain’s main trading partners slows, its export sector is also expected to suffer.

German quarterly gross domestic product growth slowed more than expected in the second quarter to 0.1 percent, weighed down by a negative trade balance, flagging consumption and weak construction investment, the country’s statistics office said on Tuesday.

The German data cast doubt on a forecast of growth of 0.3 percent in the euro zone as a whole, due at 0900 GMT.

Spain has seen some return of domestic demand in the last two quarters, though economists note that, with disposable incomes shrinking, this has been financed by households dipping in to their savings.

“This is also clearly not sustainable,” said May.

Once a cornerstone of the economy, domestic demand could remain depressed for years as unemployment remains stubbornly high at around 21 percent and households pay off some of the highest private debt levels in the region.

Whether Spain fails to grow or shrinks slightly in coming quarters is unimportant, say analysts.

“The odds of at least one quarter of quarterly contraction are very high. Whether we get a technical recession in the next year is moot, since whether growth is -0.1 or +0.1 is not relevant. No growth is no growth,” economist at Lombard Street, Jamie Dannhauser said.

Reporting by Paul Day

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