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Spain Sept industrial output unexpectedly shrinks

Source: Reuters - Fri 5th Nov 2010

Spanish industrial output unexpectedly shrank in September, data showed, putting further pressure on an already fragile economy at the end of a quarter in which the country's central bank said growth had likely stagnated. Output fell 1.4 percent year-on-year, the National Statistics Institute said on Friday, well below forecasts for a rise of 0.8 percent and a revised August rise of 1.6 percent.

"This is looking pretty indicative of where growth is going in 'ClubMed' at the moment. The bond market is cracking the whip and making the peripheral economies do exactly what they shouldn't be doing right now, which is cutting spending," said Eric Wand, analyst at consultancy 4Cast.

Spain's economy inched its way out of an 18-month recession in the first quarter, but some economists believe a slew of austerity measures designed to rein in one of the euro zone's largest public deficits could tip it back into recession.

The output data follows a survey of purchasing managers for the manufacturing sector that showed factory activity picked up in October after a slight hiccup in September.

It was the last major piece of data before the Bank of Spain's issues its often accurate estimate for GDP. The bank said the economy had likely stagnated in the third quarter after growing by 0.2 percent in the second.

Economists believe the economy contracted by 0.1 percent in the third quarter, according to the most recent Reuters survey.

Analysts also remain downbeat about Spain's lacklustre industrial recovery, which lags some way behind its main euro zone counterparts.

The key spread between Spanish government 10-year debt and German bunds jumped on Friday above 200 basis points for the first time since September, from around 190 bps on Thursday.

The output data was hit by a sharp fall in consumer durable goods which fell 11.3 percent after a rise of 3.7 percent in August. Exports have helped to keep the Spanish economy afloat since it emerged from recession.

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