Spain Economy Grows in Q2 But Outlook Still Cautious

August 18th, 2010

Spain maintained a feeble pace of growth in the second quarter, data showed on Friday, but analysts warned even that may be hard to repeat in the final half of the year as austerity measures take effect.

The economy grew by 0.2 percent quarter on quarter between April and July, as expected by economists and at a slightly faster pace than the 0.1 percent registered in the first quarter, official data showed.

The pace of growth was well short of the 0.7 percent quarterly growth expected for the euro zone when data is released at 0900 GMT, after northern European countries fared much better with their recovery plans.

“The bottom-line is that growth in the first and second quarter seems to have been boosted by fiscal stimulus measures, such as the car scrappage scheme, which will fade in the second half of the year,” said Astrid Schilo, economist at HSBC.

The data marked the second consecutive quarter of growth after the country crept out of an 18-month long recession in the first three months of the year.

It was the highest quarterly rate of growth since the first quarter of 2008 when the economy grew 0.4 percent.

On an annual basis the economy contracted by 0.2 percent in the second quarter.

“We definitely think Spain will fall back into recession in the second half of the year as austerity measures begin to bite,” said Ben May at consultancy Capital Economics.

The government has unveiled austerity plans worth 65 billion euros aimed at cutting its deficit to 3 percent by 2013.

This week both the prime minister and economy minister Elena Salgado reiterated that while growth may slow in the final half it was unlikely to contract.

Growth targets will be keenly watched by markets as the government needs a steady improvement in order to meet its targets of cutting its deficit.

On Thursday European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo warned of the government’s optimistic growth scenario and said it may be forced to take more measures to cut its deficit to an intended target of 3 percent by 2013.

A second release of Spanish GDP, including full breakdown of the data, is expected on August 26.

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  1. 18/08/10 22:49   culturespain

    I agree with Ben May, sadly. What we all have to look at are the fundamentals. In Spain´s case, the overriding question must always be – what has (or can?) replace the construction industry. This, in 2007, accounted for some 18% of GDP on government figures but taken broadly was probably more like 30%. So, if one looks at the Spanish economy, you have to ask yourself: where is the new X industry that has (will have) the same impact as the construction industry. If there is no answer – then how can Spain possibly be expected to recover?

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