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Spanish economy powers ahead as politicians dither

Published 25/08/2016, 10:10
Updated 25/08/2016, 10:10
© Reuters. Stickers of Spanish flags and bulls can be seen on a banner in front of a souvenir shop in central Madrid, Spain

© Reuters. Stickers of Spanish flags and bulls can be seen on a banner in front of a souvenir shop in central Madrid, Spain

By Angus Berwick

MADRID (Reuters) - Spain's economy grew strongly in the second quarter as consumer spending stayed robust and demand for its exports rose, though there were signs that a buoyant investment climate may be starting to sag after months of political uncertainty.

Its economic rebound has progressed virtually unscathed through eight months without a functioning government, as the country has continued to notch up one of the fastest growth rates in the euro zone this year.

Thursday's final data from National Statistics Institute INE showed quarter on quarter GDP growth of 0.8 percent, keeping pace with the first quarter and up a tenth of a percentage point from a preliminary estimate.

Consumer spending grew 3.6 percent year on year as people who kept their jobs through a recession that ended in 2013 took advantage of better times to buy big-ticket goods like washing machines.

Exports of services also performed well, INE said, even outside the tourism sector which has been boosted by record numbers of visitors this summer.

After two inconclusive national elections in December and June, the spectre of a third looms.

Politicians last week inched closer to ending the impasse when the People's Party of acting Prime Minister Mariano Rajoy agreed terms to negotiate a pact with a smaller rival, Ciudadanos.

If the agreement is sealed, Ciudadanos will back Rajoy in a parliamentary confidence vote on Aug. 31 on forming a government. But even then Rajoy would still be short of the majority he needs, raising the possibility of third ballot in December unless others also agree to back him or abstain.

While fallout for gross domestic product so far has been slight, the political deadlock has triggered concerns that companies might delay expansion plans.

A slowdown in manufacturers' investment in equipment and machinery extended into the second quarter, the INE data showed, when it grew at 7.8 percent year-on-year against 9.3 percent in the previous three months and almost 11 percent in the last quarter of 2015.

In a possible sign of the impact on government investment, spending on public works contracts slumped by a fifth in the first quarter, separate data showed on Tuesday, as decisions on infrastructure projects like roads, ports and trains were deferred.

On an annual basis the economy grew by 3.2 percent in the second quarter, INE said - below the 3.4 percent growth rate of the first but in line with a preliminary estimate.

Spain's economy is still expected to expand at one of the fastest rates in the euro zone this year - at 2.9 percent, according to the acting government - though scrutiny is growing over whether that will be enough to reach deficit targets without spending cuts.

© Reuters. Stickers of Spanish flags and bulls can be seen on a banner in front of a souvenir shop in central Madrid, Spain

Gross debt rose to a record high 1.1 trillion euros (£937.70 billion) in June, Bank of Spain data showed on Wednesday, which the economy ministry said was equivalent to 100.9 percent of national output - well above 2016 goals.

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