Weaker consumer spending and a crumbling construction sector sent Spanish growth to a 15-year low in the second quarter but Spain's government said the economy could avoid recession.
The euro zone's fourth largest economy grew by 0.1 percent on the quarter in the April-June period after expanding 0.3 percent in the first three months of the year, the National Statistics Institute confirmed on Wednesday.
It was the lowest level since late 1993, marked by the first contraction in construction investment in 12 years as dozens of building and property firms defaulted on debts following the collapse of a decade-long real estate boom.
Compared with the previous year, gross domestic product expanded 1.8 percent, its lowest rate in 13 years, INE reported, confirming a preliminary estimate published on August 14.
Though on the brink of economic contraction, Spain was the only one of the euro zone's four big economies not to shrink during the second quarter. Spanish Economy Secretary David Vegara said that trend would continue and he stood by a forecast that growth would fall to a 15-year low of 1.6 percent this year from 3.7 percent in 2007.
He ruled out a contraction or recession, defined by two consecutive quarters of negative quarterly growth. "We're not working with that hypothesis," Vegara told reporters, adding that July-September quarterly growth would not be far off rates seen in the first half.
Few economists agreed and a growing number forecast negative growth starting in the third quarter and lasting into 2009. "Everything is pointing to a mild recession in the second half of the year, the Spanish economy is no longer producing jobs," said Deutsche Bank economist Susana Garcia.
Spain has suffered multiple economic shocks this year as the collapse of a credit-fuelled housing boom coincided with the global liquidity squeeze and soaring oil prices. Worst hit is construction where investment fell 2.4 percent in the second quarter following chronic overbuilding.
Household spending, which drives two-thirds of the Spanish economy, plummeted to 1.2 percent growth from 2.2 percent in the first quarter and 4.1 percent during the year-earlier period. Supporting second quarter results was Spain's external account which normally cuts into growth but added 0.3 of a percentage point due to falling imports.
Retailers said summer sales were grim as consumer confidence stood at a record low amid estimates Spain's unemployment rate, already the highest in the European Union at 10.7 percent in June, woulld rise to 15 percent in 2009. "People aren't spending, some are losing jobs, some are afraid of losing jobs," said cafe manager Manuel Perez.
Corporate Spain is braced for tough times after house prices fell for the first time in a decade between April and June, beginning an expected 20-30 percent decline in real terms over the next four years.
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