Spain's economy recovers - but slowly

 

Spain confirmed it's economy is on the increase after growing for the second consecutive quarter between April and June, figures released earlier today revealed.

The INE National Statistics Office reported how the economy grew 0.2% in the June quarter, a modest pick-up from the 0.1% expansion in the first three months of the year. Economists had predicted 0.3% growth.

Prior to the first quarter, the Spanish economy had contracted over 6 consecutive quarters as it endured its worst downturn in decades. A collapse in the construction sector sparked the country's recession.

On a year-over-year basis, however, gross domestic product was still down 0.2%. Economists had forecast a 0.1% fall.

The growth suggests the government's recently unveiled budget cuts are yet to have an impact on growth. Spanish Prime Minister Jose Luis Rodriguez Zapatero has announced steep budget cuts aimed at bringing down the country's large budget deficit.

Measures include public sector wage cuts and smaller budget allocations for regional governments. Spain currently has a deficit of 11.2% of GDP, which it has pledged to bring under 3% by 2013.

And although Spain's government debt load is not as worrisome when compared to some of its European counterparts, the country's private sector shoulders a massive debt overhang.

The government's spending cuts have been met with stiff resistance from Spaniards, with numerous demonstrations and strikes staged by public sector workers. The Iberian nation has the highest unemployment rate in the euro area at 20.1%, with nearly half of under 25s without a job.

Economists sreported how growth in the June quarter was encouraging, but they were concerned that Spain could slip back into technical recession in the coming quarters. "The second quarter could be the last quarter for some time where the government is able to prop up effectively the struggling economy," said Raj Badiani at IHS Global Insight.

"The fiscal stance is set to become increasingly more restrictive, implying that the private economy will have to fend for itself. Apart from exports, I can't see where significant private sector growth will come from."