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Spain GDP Shows Slight Improvement

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Spain’s National Institute of Statistics has updated the country’s Gross Domestic Product (GDP) for the first quarter of this year. GDP growth for Q1 is now 0.4%, this is in line with expectations and slightly better than the previous quarters number of 0.2%. On an annualized basis Spain’s GDP growth is currently reading at 0.5%, although this is an improvement on the prior quarters -0.2% markets were slightly disappointed as figure of 0.6% was expected.

Today’s revised data also included a breakdown of the sectors contributing to the overall growth figure. Consumer spending expanded by 0.4% but the real driver of this growth was public spending which rose by 4.4% as the Spanish government attempt to create a domestic stimulus. Causing some concern is the 0.6% fall in investment in the country, for a steady recovery to take hold this metric should be trending upwards however it is likely that the recent talk of quantitative easing by the European Central Bank (ECB) has redirected some investment funds towards the sovereign bond markets. A further challenge to the Spanish recovery comes in the form of deteriorating trade figures, during Q1 exports fell by 0.4% while imports rose by 1.5%.

The lackluster data published today suggests that the Spanish government is off course and likely to miss its debt reduction targets. Public debt in Spain is currently just shy of 100% of GDP and gradually rising, the authorities have projected this to begin falling again next year but it is hard to see how today’s data supports this projection. Private household debt has been falling in Spain, as has business debt, this however is more likely due to restructuring and write offs rather than an acceleration of private debt repayment. Spain is poised to enter a recovery phase but lacks the momentum to do so, this is a case in point for ECB action.

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