Spain's growth weaker than thought

Spain's olive oil crisis
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Story highlights

  • Spain's economic growth has been weaker over the past two years than previously thought
  • Shows a deeper slump than earlier estimates, further complicating Madrid's deficit efforts
Spain's economic growth has been weaker over the past two years than previously reported, according to revised data published on Monday, indicating a deeper slump than earlier official estimates and further complicating Madrid's efforts to bring down its deficit.
Gross domestic product growth contracted 0.3 per cent in 2010, compared with an originally reported 0.1 per cent drop in output, while the 0.7 per cent growth registered for last year was revised down to 0.4 per cent, according to the country's National Statistics Institute.
"If you are starting from a lower nominal GDP base in 2011, you would need stronger growth this year to not effect the deficit," said Raj Badiani, an economist at IHS Global Insight.
"I don't expect a formal government response to this in the sense of another layer of austerity, but this presents another obstacle to achieving an already difficult target."
The revisions underscore the fragility of Spain's economy, which entered its second recession in three years at the start of 2012, with unemployment well above 20 per cent. The economy is expected to continue to shrink over the rest of the year and the next, with government estimates forecasting a drop in output of 1.7 per cent over 2012.
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Mariano Rajoy's government will this week raise Spain's sales tax from 18 per cent to 21 per cent as a measure to bolster tax revenues, a move some economists have said will weigh on already weak domestic consumer demand.
Luis De Guindos, finance minister, said in an interview with the International Herald Tribune that he did not expect the recession in Spain would prevent the government from meeting its tax revenue targets.
Mr De Guindos also said that he expected Spanish banks to use about €60bn of the €100bn in aid provided by European finance ministers in June, and that Madrid would reassure the European Central Bank of its commitment to fiscal consolidation if the ECB were to continue to intervene in the secondary market for its government debt.
Spanish 10-year borrowing costs have fallen in recent weeks from a euro-era high of 7.75 per cent hit in late July to less than 6.5 per cent. This followed an indication from the ECB that it would be willing to intervene to lower Spain's bond yields if the country were to accept as yet undefined conditions as a consequence.
Mr Rajoy has said he would consider requesting a full intervention from the ECB, but only once the conditions were made clear.
The downward GDP revisions, which come ahead of final second-quarter growth figures due on Tuesday, were driven by changes to previous estimates of internal demand and exports, the latter of which grew by just 0.3 per cent in 2010 compared with an earlier figure of 0.93 per cent.