Spanish economy continues to contract with no short term expectations of change
Spain’s economy contracted 0.4% in the third quarter and continues to face strong headwinds, the central bank said on Tuesday. Adverse financial conditions eased “somewhat” and the decline in domestic demand was 1.2%, an improvement over the 1.4% fall in the second quarter.
However the additional consumer spending in the July-September period can be explained by households’ deciding to move up planned purchases of durable goods ahead of a coming increase in value added tax. The effect is likely to vanish in the fourth quarter, anticipates the Banco de España in its latest report.
With unemployment approaching 25%, the drop in real incomes and continued debt-de-leveraging by households will continue to combine against more robust consumer spending, said the Banco de España.
The fall in public-sector expenditure intensified in the third quarter and exports, while still strong, contributed less to GDP, that during the April-June period, according to the report.
The Spanish economy remains hampered by the fallout from the collapse of the real estate and house-building bubble, which left many banks over exposed plus a surplus of unsold homes.
Weak domestic demand and a slowing global economy have made Spanish businesses reluctant to invest in expanding or new ventures, the bank said.
Median annual household income in Spain fell 1.9% this year to 24,609 Euros, according to the latest national survey on living conditions.
With Spain mired in recession for the second time in four years, 12.7% of families said they struggle to make money last until the end of the month, compared with 9.8% last year.