The Spanish economy left behind nine quarters of shrinking output in the period July-September, marking an end to the longest recession the country has suffered in decades, the Bank of Spain said Wednesday.
In its quarterly report on the domestic economy, the central bank estimated that GDP grew 0.1 percent quarter-on-quarter in the period after shrinking by the same amount the previous three months, but contracted 1.2 percent from a year earlier. Domestic demand made a negative contribution to output of 0.3 percentage points on a quarterly basis, while net trade – exports minus imports – boosted GDP by 0.4 points.
The report also highlighted a significant slowdown in the decline in employment. The bank said the fall of 0.1 percent registered in the period, if confirmed, “would be the least-unfavorable rate recorded since the start of the crisis.”
“We are optimistic on the euro periphery as a whole and Spain in particular,” Bloomberg was told by Robert Wood, an economist at Berenberg Bank, which is forecasting growth of as much as 1.4 percent in 2014. “The country has made big structural changes,” he added. “It’s been engaged in a lot of deficit reduction, business sentiment is improving and unemployment is probably close to a peak.”
Just under six million people are out of a job in Spain, with the jobless rate of 26.3 percent second only to Greece in the European Union.
The central bank said wage restraint remains in place, which, combined with an annual increase of 2 percent in productivity, should further reduce labor costs. The report noted that the average salary increase in wage settlements in the first nine months of the year declined to 0.6 percent from 1.1 percent in the same period a year earlier, with somewhat lower increases in the latest collective agreements signed. The Bank of Spain said it was “vital” for this trend to continue to help “ensure the incipient recovery in activity passes through forcefully to job creation.”
The Spanish stock market has already been factoring in a recovery in the economy, with the blue-chip Ibex 35 index advancing 20 percent since the start of the year. Spanish government bond yields have also narrowed, with the risk premium standing at around 245 basis points, well down on the euro-era record of 638 basis points seen in July of last year.
However, the easing of sovereign borrowing costs has yet to filter through to private-sector lending rates, which scarcely changed during the quarter.
The Bank of Spain said it estimated household spending stabilized in the third quarter when there was a small increase, while investment in capital goods continued to advance. However, government spending remained weak as a result of the administration’s ongoing austerity drive to rein in the public deficit.
The report noted that average growth in exports in the first seven months of the year was 6.6 percent on the back of the country’s improved competitiveness, while imports declined slightly. According to figures also released Wednesday by the Economy Ministry, the trade deficit in the period July-August narrowed 64 percent from a year earlier to 8.42 billion euros. The bank also pointed to a “sharp recovery” in overseas tourist receipts since the start of the year. The balance of payments registered its first surplus in the first half of the year in 16 years.
Fe de errores
The phrase in the Bank of Spain report was “least-unfavorable rate" of job destruction since the start of the crisis and not “the least-favorable rate" as was stated in this article until 8.45pm.