Spanish GDP Shrinks for Sixth Quarter, Slowing European Rebound

By Emma Ross-Thomas

Nov. 12 (Bloomberg) -- Spain’s economy contracted for a sixth quarter, with a housing-market collapse and rising unemployment keeping the country in a recession even as the euro region returned to growth.

Gross domestic product fell 0.3 percent in the third quarter from the previous three months, when it dropped 1.1 percent, the Madrid-based National Statistics Institute said today. That was stronger than the median forecast of a 0.4 percent contraction in a Bloomberg survey of 18 economists. The economy shrank 4 percent from a year earlier.

The euro-region economy probably expanded last quarter, leaving Spain trailing the economies of Germany, France and Italy, which all grew in the period, the European Commission forecasts. The International Monetary Fund expects the Spanish recession to push the unemployment rate to 20 percent next year. Madrid-based Banco Santander SA, Europe’s second-biggest bank by market value, said on Oct. 28 that its home market posed the greatest “threat” to earnings.

The euro region probably grew 0.5 percent in the third quarter, according to the median forecast from a Bloomberg News survey of 34 economists. GDP data for Germany, France, Italy and the European Union is published tomorrow.

Diageo Plc, the London-based maker of Smirnoff vodka, has cited Spain as a weak market and said on Aug. 27 that it had cut marketing spending in the country to reflect lower consumer demand. Telefonica SA, Europe’s second-largest phone company, doesn’t expect the Spanish market to recover until 2011, Guillermo Ansaldo Lutz, chairman of Telefonica’s domestic business, said on Oct. 9.

Rising Joblessness

Spain has the highest unemployment rate in the euro region at 19.3 percent, according to the EU’s statistics office, and more than four in 10 young people are out of work. The government has injected funds worth 2.3 percent of GDP into the economy this year, creating around 400,000 jobs and swelling its budget deficit to one of the highest in Europe. Next year, the government plans to raise value-added tax and levies on income from capital to rein in the shortfall.

The recession, prompted by the collapse of the housing market as well as the global financial crisis, has eroded the popularity of Prime Minister Jose Luis Rodriguez Zapatero. The opposition People’s Party would win 41 percent of the vote if elections were held now, compared with 37.7 percent for the ruling Socialist Party, according to a poll published Nov. 2 by the government’s Center for Sociological Research. Spaniards consider unemployment to be the biggest problem, the opinion poll for October showed.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net