Spain's Economy Grows the Least in 15 Years on Housing, Oil

By Ben Sills

Aug. 27 (Bloomberg) -- Spain's economy grew at the slowest pace in 15 years in the second quarter as record oil prices and a housing slump edged the country toward a recession.

Economic growth slowed to 0.1 percent from 0.3 percent in the first quarter, the Madrid-based National Statistics Institute said today in a statement. That confirmed the institute's initial estimate published on Aug. 14. From a year earlier the economy grew 1.8 percent, the slowest since 1996.

The slowdown in construction is spreading through the rest of Spain's economy, with surveys showing manufacturing and services industries both contracted for a seventh month in July. Unemployment jumped to a three-year high in the second quarter, while house prices fell for the first time in a decade and building permits plunged by more than half in May from a year earlier.

``Growth will be practically flat through the first half of next year,'' Ivan Barbacid, a strategist at Barclays Fondos in Madrid, said before the release.

Household spending from a year earlier slowed to 1.2 percent from 2.2 percent in the first quarter and construction investment fell 2.4 percent after a 0.3 percent increase in the first three month. Government spending accelerated to 3.8 percent from 3.6 percent.

Government Measures

Prime Minister Jose Luis Rodriguez Zapatero's government this month approved additional measures to steer annual growth back to about 3 percent by 2010. The government pledged 20 billion euros of financing for small businesses and families buying public housing in 2009 and 2010. That followed an 18 billion-euro package announced in April for this year and next.

The euro-region economy contracted 0.2 percent in the second quarter, shrinking for the first time since the start of the single currency, the European Union statistics office in Luxembourg said today. The German, French and Italian economies, the three largest in the euro zone, also shrank.

European Central Bank President Jean-Claude Trichet said on Aug. 7 that growth in the euro zone would be ``particularly weak'' through the third quarter, even as the Frankfurt-based bank held its benchmark interest rate at a seven-year high to tame price rises.

Banco Bilbao Vizcaya Argentaria SA, Spain's second-biggest bank, posted a 19 percent fall in second quarter profit as loan defaults surged while Vodafone Plc, the world's largest mobile phone company, posted its biggest decline in 20 years last month after saying Spain's slowdown would curb profit.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net