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Consumer spending falls as deficit-cutting push bites

Growth in export sector sees off double-dip recession

Consumer spending in Spain fell in the third quarter of the year from the previous three months due to the impact of a sales tax hike and the government's austerity drive, with the export sector barely preventing the economy from slipping back into recession.

According to figures released Wednesday by the National Statistics Institute (INE), household spending fell 1.1 percent from the second quarter when it was up 1.5 percent. The INE said one of the main reasons behind this was a drop in big-ticket purchases as consumers opted to bring these forward to avoid the increase in the standard value-added tax rate to 18 percent from 16 percent at the start of July. Spending was also dragged lower by the removal of stimulus measures by the government as it set about taming the country's yawning budget deficit. On an annual basis, growth in consumer spending slowed to 1.4 percent from 2.2 percent.

Belt-tightening also saw a drop in public spending of 0.1 percent from a year earlier as the government drastically scaled back investment and cut public sector wages by 5 percent. The fall in investment widened to 7.0 percent from 6.8 percent the previous quarter.

As a result, domestic demand shaved 0.8 percentage points off GDP growth, compared with a negative contribution of 0.3 points the previous three months. This was offset by a stronger contribution from net trade — exports minus imports — of a full percentage point, up from 0.3 points in the second quarter. Exports rose 8.7 percent, compared with import growth of only 3.9 percent.

The end result was that GDP was unchanged in the period July-September, compared with the second quarter. The INE revised second quarter growth to 0.3 percent from 0.2 percent. Spain pulled out of its deepest recession in over half a century at the start of this year when GDP climbed 0.1 percent from the end of 2009.

The economy, however, grew on an annual basis for the first time since the third quarter of 2008, with GDP up 0.2 percent.

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