Spain's Economy Remains Bright Spot Amid Euro-Area Slowdown

(Bloomberg) -- Spain remained an economic bright spot in the euro zone in late 2018 even though the country, like the rest of the region, faces a weaker outlook this year.

Growth unexpectedly accelerated to 0.7 percent in the fourth quarter, contrasting with figures reported by Germany, France and Italy, where trade tensions, violent protests and budget struggles hobbled growth. Spanish output was propelled by consumer and government spending and a surge in exports. Government spending was buoyed by a hiring push by the Socialist administration. Investment declined.

“Internal demand has been very solid, very intense,” said Maria Jesus Fernandez, an economist at Funcas, a think tank in Madrid. Helped by job growth, that strength “is the reason for stronger growth” compared with to EU peers, she said.

Spain’s economy has maintained momentum amid increasingly uncertain prospects -- clocking its 21st-straight quarter of expansion and annual growth of 2.5 percent. But political uncertainty has risen in the euro area’s fourth-largest economy as Prime Minister Pedro Sanchez struggles to pass a spending plan for 2019. Spain also isn’t immune to some of the headwinds buffeting its neighbors.

Spain’s central bank expects expansion of 2.2 percent in 2019, but Governor Pablo Hernandez de Cos said earlier this week that the slowdown in the region “poses downside risks” to the domestic outlook. Italy’s economy may have slipped into recession at the end of last year.

Drags on euro-area economic growth that initially appeared to be only temporary have proven to be somewhat more intractable. Stagnating demand in China means Germany’s carmakers will continue to struggle after nearly plunging the economy into a recession. December retail sales in Germany plunged more than expected, while France saw business disrupted by Yellow-Vest protests.

The International Monetary Fund cut its 2019 euro-area projection to 1.6 percent last week -- down 0.3 percentage point from October. The region’s three biggest economies are seen expanding less.

Even though the Spanish economy isn’t expected to circumvent a slowdown, it continues to be “incredibly resilient,” Banco Santander Executive Chairman Ana Botin said Wednesday.

“We started off 2019 on the right foot,” Economy Minister Nadia Calvino told Onda Cero radio. “We have a framework of robust growth that I expect will be maintained throughout the year.”

--With assistance from Harumi Ichikura, Catarina Saraiva, Fercan Yalinkilic and Charles Penty.

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

To contact the editor responsible for this story: Fergal O'Brien at fobrien@bloomberg.net

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