Government bows to reality and accepts low growth figure

he Spanish government on Wednesday finally agreed publicly with what most experts have been saying for some time: that the economy will grow far less this year than the official forecast of 1.3 percent.

Speaking at a news conference shortly after the National Statistics Institute (INE) confirmed that the country's anemic recovery from recession had ground to a halt in the third quarter, the secretary of state for the economy, José Manuel Campa, said economic growth for the full year would come in at 0.8 percent.

Campa's figure is line with the International Monetary Fund's estimate, while the European Commission is forecasting slightly lower growth of 0.7 percent.

"With the figures we have available so far and the prospects for what are our sources of growth and how the world economy is going [...], it would be logical to expect that in this quarter [the fourth] growth will be similar to what we've had so far," Campa said. "As a result, average growth for the year will be close to what we have just now, which is an annual rate of 0.8 percent," he added.

Confirming earlier flash estimates, the INE said Wednesday that GDP had failed to grow in the period July-September, compared with the previous three months, while the annual rate of growth was 0.8 percent, unchanged from the figure in the second quarter.

Campa, however, insisted the government has not changed its official forecasts, revisions of which take place only three times a year. The last of these revisions is normally in September when the government presents its draft budget for the following year. However, because the general election was brought forward to November 20, it will be up to the incoming government to draw up the budget for 2012.

Campa insisted that the government's commitment to meeting its target of reducing the public deficit this year to six percent of GDP from 9.2 percent last year was "unconditional" despite forecasts by the Bank of Spain and BBVA that it will fall short of that mark due to the regions' failure to meet their goal of 1.3 percent of GDP.

Campa said with the figures currently available, the government remains on target to meet its deficit-reduction target.

However, lower-than-expected economic growth obviously pushes down tax revenues making the task of reining in the shortfall more arduous. Spain's zero growth in the third quarter contrasted with an advance of 0.5 percent in the German economy and 0.4 percent in France.

The INE said domestic demand shaved 1.2 percentage points off GDP growth, but that was an improvement on the previous quarter when the negative contribution was 1.7 points. That was the result of consumer spending posting annual growth of 0.4 percent after contracting 0.3 percent the previous three months, while growth in investment in equipment picked up to 2.4 percent from 1.5 percent.

"The most positive [aspect] is that domestic demand was less negative thanks to an improvement in domestic spending and investment in equipment," Reuters quoted Cortal Consors economist Estefanía Ponte as saying.

By contrast, the positive contribution of net trade - exports minus imports - narrowed to 2.0 percentage points from 2.5 the previous quarter as the European economy slowed. Growth in exports slipped to 8.1 percent from 8.7 percent, while imports climbed 0.8 percent after contracting 0.7 percent.