Spain confirms timid economic recovery

13th August 2010, Comments 0 comments

Spain's economy confirmed its slow recovery from recession on Friday when official data showed gross domestic product grew 0.2 percent in the first quarter from the second.

But the recovery, already substantially weaker than in Germany and France, where second-quarter growth was 2.2 and 0.6 percent respectively, is expected to come to a halt in the third quarter.

Financial analysts expect tough government austerity measures, a rise in sales in July and the end of government subsidies on new-car purchases to push the economy into negative growth.

Socialist Prime Minister Jose Luis Rodriguez Zapatero on Tuesday admitted that "the third quarter will not be as good as the second."

The provisional figures released Friday by the National Statistics Institute (INE) were in line with estimates published last week by the Bank of Spain. The INE is to release definitive data on August 26.

The institute said that, on a year-on-year basis, Spanish GDP retreated by 0.2 percent, compared with negative growth of 1.3 percent in the first.

Spain entered its worst recession in decades at the end of 2008 as the global financial meltdown compounded a crisis in the once-booming property market.

It emerged during the first quarter of this year with tepid growth of just 0.1 percent in the first quarter.

The government predicts the economy will contract 0.3 percent in 2010 and then expand 1.3 percent in 2011.

But other organisations are far more pessimistic, sparking doubts over the government's ability to rein in its massive public deficit.

The Bank of Spain expects a contraction of 0.4 percent this year before a return to growth of 0.8 percent next year while the International Monetary Fund has revised its 2011 growth forecasts from 0.9 percent to 0.6 percent.

And a study released Monday by the BBVA bank predicted Spain's economy will shrink 0.6 percent this year ahead of growth of just 0.7 percent in 2011.

"The factors behind this temporary correction setback in the economic uptrend derive mainly from the contractive effects of fiscal consolidation programmes being pushed through in Spain and Europe, and from the increased uncertainty on the international financial markets," BBVA said.

The government this year introduced tough austerity measures to slash the public deficit from a massive 11.2 percent of gross domestic product in 2009 to six percent in 2011 and three percent -- the EU limit -- by 2013.

The cutbacks include a freeze on pensions and a five-percent pay cut for civil servants.

The government has also adopted an overhaul of the labour market that will make it easier and cheaper for employers to dismiss workers in an effort to fight an unemployment rate that has hit 20 percent, the highest in the eurozone.

© 2010 AFP

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