Downturn in economy slows in second quarter

The pace of the contraction in the Spanish economy slowed in the second quarter of this year due to the ongoing dynamism of the export sector and a slightly less negative contribution from domestic demand.

The Bank of Spain said in its quarterly report on the economy released Tuesday that GDP declined 0.1 percent in the period April-June from the previous three months after falling 0.5 percent in the first quarter and 0.8 percent in the fourth quarter of last year.

On an annual basis, the decline in activity was 1.8 percent after a contraction of 2.0 percent in the first quarter.

“The easing of the fall in output derived from the strength of net external demand, which, driven by the dynamism of exports of goods and services, contributed 0.4 percentage points to the quarter-on-quarter GDP rate,” the report said.

The negative contribution of domestic demand narrowed to 0.6 percentage points from 0.7 points in the first quarter. The bank said household and corporate spending continues to be conditioned by “adverse financial conditions” and ongoing deleveraging along with the impact of the government’s austerity drive to rein in the public deficit.

Private consumption fell 0.4 percent, the same rate of decline as in the first quarter, while spending on capital goods dropped 0.9 percent after a fall of 1.0 percent. Disposal income fell by less while the household savings rate hit a record 17.8 percent in the quarter. Corporate debt in May was down 7.3 percent from a year earlier.

The report also noted improvement in the labor market that when beyond the impact of seasonal hiring. The decline in employment narrowed to an annual 4.0 percent in the second quarter from 4.5 percent in the first three months of the year.

Unit labor costs also continued to fall due to lower wages and improved productivity, although the pace of decline was slower than in previous quarters.

Inflation also eased in the quarter to an average 1.7 percent. The bank said it expected the rate to decline significantly” more throughout this year once the year-on-year impact of hikes in indirect taxes and regulated prices in the second half of last year disappear.