Spain’s economic growth accelerated

Spain’s economic growth accelerated in the second quarte..

Spain’s economic growth accelerated in the second quarter as consumers stepped up spending before a sales tax increase in July.

House-hold spending grew 2 percent from a year earlier after a 0.3 percent contraction in the first quarter, the National Statistics Institute said in Madrid today in its breakdown of gross domestic product data. Investment spending fell 7 percent on the year and government spending increased 0.4 percent. The institute confirmed its earlier forecast that GDP rose 0.2 percent from the previous quarter. The contraction from the year earlier period was revised to 0.1 percent from 0.2 percent.

As the economy emerges from the worst slump in 60 years, the central government’s budget deficit is shrinking and the risk premium on Spanish government debt has fallen from a euro-era high on June 16. Still, the deepest austerity measures in at least three decades, tax increases and the withdrawal of stimulus including public works programs threaten to undermine the recovery. The unemployment rate rose to a decade-high of 20.1 percent in the second quarter.

The Bank of Spain said last week that car-buying incentives boosted spending in the quarter, while an increase in sales tax in July encouraged consumers to bring forward purchases. Spanish house-hold consumption grew around 0.7 percent from April to June, it estimated.

“As these effects come to an end, the pace of consumption growth could ease, in the context of a decline in disposable income” as wage growth slows and government stimulus measures are wound back, the Bank of Spain said.

Wage Cuts

Socialist Prime Minister Jose Luis Rodriguez Zapatero is lagging in opinion polls as he cuts public-sector wages by 5 percent to reduce the euro-region’s third-largest budget gap and tries to overhaul the labor market. The country’s two biggest unions have called a general strike for Sept. 29.

The Finance Ministry expects quarterly growth throughout this year. That won’t be enough to prevent a second annual contraction in GDP this year. The ministry forecasts that the economy will shrink 0.3 percent this year. Spain’s national statistics institute yesterday revised the 2009 contraction to 3.7 percent from the 3.6 percent initially reported.

As a result of the austerity measures, the ministry cut the 2011 growth forecast to 1.3 percent from 1.8 percent. The International Monetary Fund forecasts a 0.4 percent contraction in 2010, seeing a “weak and fragile” recovery with a risk of worsening conditions, it said July 30.

Story from Bloomberg