Spain Emerges From Two-Year Recession

The New York Times

By RAPHAEL MINDER

October 23, 2013

MADRID — Spain pulled out of a two-year recession in the third quarter, with its economy growing 0.1 percent from the previous quarter, according to preliminary data released Wednesday by the Spanish central bank.

While anticipated, the growth news will likely provide a fillip for the conservative government of Prime Minister Mariano Rajoy, which, since coming into office almost two years ago, has pushed through deeply unpopular spending cuts and tax hikes in order to comply with budgetary targets in accordance with Spain’s European partners.

“The worst is over,” said Holger Schmieding, chief economist at Berenberg Bank in London, in a note published Wednesday, noting a turnaround in net Spanish exports.

“One by one, the euro crisis countries are returning to growth after a savage adjustment recession,” he said, noting that Greece, Ireland and Portugal showed signs of expansion earlier this year. Concerning Spain’s prospects, Mr. Schmieding added: “As the slide in domestic demand peters out, the ongoing surge in exports will drive growth.”

Still, Spain is not expected to return to precrisis growth levels for several years as it continues to struggle with weak consumer spending and an unemployment rate of about 26 percent. Last month, the government presented its budget for 2014 based on a forecast that the Spanish economy will grow 0.7 percent next year. Gross domestic product is expected to contract 1.3 percent this year, according to Mr. Rajoy’s government.

Spain’s economy had contracted for nine consecutive quarters. After a decade-long property bubble burst in 2008, it sank into a first recession, before briefly returning to growth in 2010. The Spanish economy was then hit by a banking crisis that forced Madrid to negotiate a European bailout to keep afloat Bankia and other lenders weighed down by property loan defaults. In the end, Spain used 41 billion euros, or $56 billion, of the 100 billion euros that it negotiated in a European banking rescue package.

Even before Wednesday’s data, the government trumpeted the economic turnaround. But the fact that Spain has been in and out of recession since 2008 has left some economists wary about the solidity of the latest recovery.

“I still see an economy that is very vulnerable to any perturbation, whether internal or external,” Javier Diaz-Giménez, professor of economics at the IESE business school, told a press briefing earlier this month.

Mr. Diaz-Giménez noted that, assuming an annual growth rate of 1 percent, Spain would return only in 2021 to the growth rate of early 2008 before the construction bubble burst.

Spain’s exit from recession has also coincided with renewed investor confidence. The main Spanish stock marked index climbed back this month to its highest level since July 2011. This week, Bill Gates, the co-founder of Microsoft, announced the purchase of a stake worth 113.5 million euros in FCC, one of the Spanish construction companies that was on the front line of the housing market collapse. Spain’s borrowing costs have also recently fallen sharply.

The Bank of Spain provided the preliminary data on Wednesday. The official growth figures are due to be published next week by the National Statistics Institute.