Spanish Economy Contracted by 0.3% in Third Quarter

November 19th, 2012

According to the National Statistics Institute’s report on the Quarterly National Accounts of Spain released yesterday, the Gross Domestic Product (GDP) generated by the Spanish economy in the third quarter registered a decline of 1.6% over the same period last year, while quarter-on-quarter it contracted by 0.3%.

This data matches the advance estimates issued on 30th October and are below the projections made by the Bank of Spain, who had forecast a contraction of 0.4% quarter-on-quarter and of 1.7% year-on-year.

The decline of the economy in the third quarter is mainly due to the drop in both consumption and investment, in a period in which the increase in VAT has impacted significantly on the spending of the Spanish.

Domestic demand continues to fall

The Institute stressed in its report that between July and September domestic demand registered a more negative contribution, reaching -4 points, compared with the -3.8 points registered in the previous quarter.

With regard to domestic demand, total household spending fell by 0.5% quarter-on-quarter and 2% year-on-year, which is slightly less than in the previous three months. Advance purchases due to the VAT increase in September may have motivated this slight improvement, said the Institute, but indicated that workers’ remuneration, the primary resource for household expenditure, fell by 5.5% year-on-year, compared with a fall of 5.1% in the second quarter.

In turn, employment, measured in “terms equivalent to full time jobs”, fell by 4.6%. This represents a net reduction of 789,000 full time jobs in one year.

Governments reduced their spending by 3.9% year-on-year, one percentage point more than in the second quarter, and 2.4% quarter-on-quarter, compared to -0.6% previously.

In terms of gross fixed capital formation, the report noted an annual decline of 9.9%, seven tenths above the previous data. Looking at the individual asset classes, materials recorded a decline of 10.9%, and investment in capital goods and construction registered contractions of 7.3% and 12.6%, respectively.

On this last point, El Economista reported that the Institute highlighted the sharp drop in investment in infrastructure and other construction, of 16.7% year-on-year. Investment in housing fell by 8%.

As for external demand, the contribution of net exports of the Spanish economy to the quarterly GDP remains stable at 2.4 points. This is as a result of an increase in exports being offset by a drop in imports.

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