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Spain Household Spending Boosts Recovery

Source: Bloomberg - Thu 28th Nov 2013
Spain Household Spending Boosts Recovery

Spanish household spending grew in the 3 months through September for the first time in 6 quarters, helping end a 2-year recession amid continued export growth.

Household spending increased 0.4% from the 3 months through June, when it declined 0.1%, while exports rose 2.2% after a 6.4% gain in the previous quarter, the Madrid-based National Statistics Institute said today.

GDP rose 0.1% in Q3, the office said, confirming an Oct. 30 estimate. The economy contracted 1.1% from a year earlier.

Investors are returning to the euro region's 4th-largest economy after PM Mariano Rajoy sought European aid for the banking sector last year and the nation came near to losing access to the markets. The government is banking on reigniting growth after a 6-year slump to stabilize public debt at 101% of GDP by 2015.

"Spain's economic situation is starting to improve," said Robert Wood, an economist at Berenberg Bank in London. "Business sentiment is picking up, unemployment is probably close to a peak and exports will continue to be a growth driver in the next year or two."

Encouraging Pickup

Adecco, the world's largest provider of temporary workers, this month said Q3 profit rose 61%, helped by an "especially encouraging" pickup in demand for temporary workers in Spain and Italy after labor reforms in those countries. Renault's October sales of its main Renault brand jumped 35% in Spain as car registrations surged.

The economy will probably continue to grow this quarter as indicators suggest domestic demand is stabilizing, Deputy Economy Minister Fernando Jimenez Latorre said at a news conference in Madrid today.

Measures taken last year to enable companies to cut labor costs have helped boost Spain's exports, Deputy Trade Minister Jaime Garcia-Legaz Ponce said last week.

"Spain is achieving an internal devaluation, which is much tougher and complex but has the advantage of being permanent" compared to a currency devaluation, he said.

While Spain's unemployment rate remains the second-highest in the EU at 26%, it stabilized in Q3 and the government is counting on contained prices to support spending.

Inflation, calculated using the EU's standardized method, accelerated to 0.3% in November after prices were unchanged in October, INE said in a separate release. That's more than the 0.1% median of 14 estimates in a Bloomberg survey.

"The domestic economy provided an unexpected boost to activity during Q3," Raj Badiani, an economist at IHS Global Insight in London, said in a note today. "Spain remains well short of establishing a credible recovery."