Rent Guarantee Insurance | Spanish economy shrinks as housing market continues to fall

Rent Guarantee Insurance | Spanish economy shrinks as housing market continues to fall

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GDP fell by 0.5% in first quarter, in line with forecasts that recovery will be delayed until end of the year

Spain is heading for another year of recession after figures showed GDP contracted in the first three months of 2013 amid a widespread slowdown in consumer spending, rising unemployment and predictions of further declines in house prices.Rent Guarantee Insurance

The economy shrank by 0.5% in the first quarter, according to Spain’s national statistics office, in line with government predictions that a recovery will be delayed until the end of the year.

One analyst said the economy, which started to decline in the summer of 2011, was on course to repeat last year’s 1.9% contraction before stabilising in 2014.

The gloomy outlook followed a raft of weak figures showing that Spain remains in the grip of a deep recession. A report by the credit ratings agency Standard & Poor’s showed that the housing market continued to be a drag on growth. House prices have already fallen by more than 40% in some areas, sparking a wave of repossessions. Tens of thousands of families are unable to sell their homes while they remain in negative equity.

“Spanish households are feeling the pain most severely,” said the S&P economist Sophie Tahiri. “We predict prices will fall by 8% this year and by another 5% in 2014, as precarious economic conditions deter buyers and as swathes of unsold housing stock drag on prices.”

Imports fell sharply, indicating a slump in consumer and business demand. A strong rise in exports provided the only glimmer of hope, helping to prevent even deeper falls in unemployment and generating much-needed foreign income. The rise in exports also cut the country’s longstanding budget deficit to its lowest level since the banking crash.

A 4.4% increase in exports in February and an 8.2% slide in imports helped slash Spain’s current account deficit to €1.3bn, less than a quarter of the figure reported a year earlier.Rent Guarantee Insurance

Exports have risen 38.6% on the previous year, according to Mads Koefoed, an economist at Saxo Bank, and are expected to continue rising as Spanish goods become more competitive following a fall in wages.

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Spain’s central bank has revised down its growth forecast for 2013 from a decline of 0.5% to a 1.3% fall. It now predicts growth of 0.5% in 2014.

The government has also revised down its public spending deficit forecast for 2013, to 6.3% of GDP. It predicts the deficit will be 5.5% of GDP in 2014, 4.1% the following year and 2.7% in 2016, which would mean meeting the EU budget deficit target two years later than was first demanded by Brussels.

Annalisa Piazza, an economist at Newedge Strategy, said consumers were likely to spend another year with their hands in their pockets, discouraging businesses from spending or investing.

“Domestic demand will remain a drag on growth in 2013, shaving nearly four percentage points off GDP. Domestic demand will start to be supportive for growth only in 2016,” she said.

The government says the worst of the slump has passed and expects quarterly growth before the end of this year. The finance ministry expects that the export-led recovery will limit further rises in unemployment and kickstart growth.

“All the indicators which look forward in Spain point to recovery, and a much better economy than one year ago,” said the economy minister, Luis de Guindos.

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