Spanish economic growth picks up but remains anemic

The Spanish economy grew at a slightly quicker pace at the start of the year driven by the export sector, but growth was insufficient to create jobs as domestic demand continued to suffer from the government's drive to get its fiscal house back in order.

The National Statistics Institute (INE) said Friday GDP growth accelerated to 0.3 percent in the first quarter of the year from 0.2 percent in the previous three months, while on an annual basis it climbed to 0.8 percent from 0.6 percent.

The figures came in slightly better than estimates released earlier this month by the Bank of Spain, which calculated quarter-on-quarter growth at 0.2 percent and the annual rate at 0.7 percent.

Jobless figures for the first quarter released at the end of April by the INE showed the recovery remains too anemic to make inroads into unemployment. The number of people out of work jumped to a record 4.9 million, while the jobless rate rose by almost one percentage point to 21.3 percent.

Reuters quoted Nicolas López of the brokerage firm M&G Valores as saying first-quarter growth was slightly stronger than expected. "But the data don't change the snapshot of the Spanish economy," he added. "The improvement is solely due to exports, while domestic demand continues flat or slightly negative, and we'll have to wait until 2012 to see a recovery in domestic demand."

A report released Thursday by the International Monetary Fund identified the government's deficit-reduction push as the main drag on activity, estimating it would shave 2 percentage points off GDP this year and 1.5 points in 2012. The government is hoping spending cuts, tax hikes and a freeze on public sector wages and pensions will allow it to reduce its public deficit from 9.1 percent of GDP last year to 6.0 percent this year and 4.4 percent in 2012.

The government is forecasting GDP growth of 1.3 percent this year and 2.3 percent in 2012, figures at odds with those released Friday by the European Commission, which predicts a rise in GDP of only 0.8 percent in 2011 and 1.5 percent the following year. Brussels also questioned the administration's deficit targets, forecasting the shortfall would fall to 6.3 percent this year and 5.3 percent in 2012.

Spain, however, can take some cold comfort from the situation in Portugal, which fell into recession again in the first quarter. Portugal's INE said the economy shrank by 0.7 percent, both on a quarterly and annual basis.

The statistics office attributed the contraction to a "strong negative contribution" from domestic demand as a result of a decline in household and public spending. That was partly offset by a "strong" performance by the export sector.

And the tough terms of Portugal's 78-billion euro bailout package from the IMF and the European Union look set to drive the economy into an even deeper recession this year and the next. The EC on Friday predicted Portugal's GDP would contract by 2.2 percent in 2011 and by 1.8 percent the following year, when it is expected to be the only country in Europe with negative growth.

The austerity drive imposed by the IMF and the EU is aimed at lowering Portugal's public deficit to 5.9 percent of GDP this year and to 4.5 percent in 2012 from 9.1 percent in 2010. Along the way, Brussels expects the country's outstanding public debt to rise to 101.7 percent of GDP this year and to 107.4 percent the following year.

Unemployment in Portugal is also expected to increase, hitting 13 percent in 2013, compared with 11.1 percent at the end of 2010. "The increase in unemployment is the price we have to pay for budget consolidation," Prime Minister José Sócrates said Friday. "The only way to return to growth is by putting our public accounts in order."