New Spanish Normal Means Slower But Still-Strong Economic Growth

(Bloomberg) -- Spain’s economy settled down into a slower pace of growth, reflecting a broader malaise in the euro area.

A second consecutive quarter of 0.4% expansion -- in line with economists’ estimates -- marks a down-shift from the steep rates clocked since the country emerged from a double-dip recession almost six years ago.

Long a standout among its euro-area peers, domestic tailwinds have started to fade as job creation slows and external uncertainties such as Brexit and trade tensions weigh on the outlook. Domestically, there’s also the uncertainty surrounding the Nov. 10 election, the second this year, which may result in no party with a majority.

The 19-country euro economy probably expanded only 0.1% in the third quarter, which would be the weakest performance in over six years. Data are due later on Thursday. Germany, the largest economy in the bloc, is widely expected to have slipped into a technical recession.

France has proven a bright spot with growth of 0.3%. The country is less exposed to trade difficulties and more reliant on domestic demand, which the government has spurred with tax cuts.

While Spain’s outlook is still brighter than that of many other economies in the region, projections point to weakening momentum.

What Bloomberg’s Economists Say

“Political uncertainty is heightened, with the electorate heading to the polls again on Nov. 10 and a Supreme Court decision to imprison a group of Catalonian separatist leaders having prompted a new wave of protests in the region. Surveys suggest that consumers and businesses are becoming more anxious. This poses downside risks to Spain’s prospects as the end of the year approaches.”

--Maeva Cousin. Read the SPAIN REACT

In the third quarter, Spanish growth was driven by domestic demand, with private consumption and investment posting solid gains. Exports fell the most in a year.

The country’s central bank expects the economy to expand by 2% this year, following growth of 2.4% in 2018. That slowdown will complicate attempts by Spanish policy makers to tackle the longstanding Achilles’ heel of the nation: the unemployment rate.

Joblessness has fallen below 14% in the third quarter from a high of nearly 27% at the start of 2013. Signs are increasing that it won’t fall much more because it’s bumping up against deep-rooted, structural problems in the labor market, such as an over-reliance on temporary contracts.

The jobless rate is a key challenge for the next Spanish government. Spaniards head to the polls next month, and pollsters expect the new administration to be weak and without a majority. That means lawmakers are likely to struggle to pass a budget, let alone implement the structural reforms needed to strengthen the economy.

--With assistance from Ainhoa Goyeneche and Charles Penty.

To contact the reporter on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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