Spain's Recovery Stalls Amid Austerity Push

Spain's timid economic recovery stalled in the third quarter as the result of government austerity measures, but should soon pick up again, the Bank of Spain said Friday, The Wall Street Journal reported. The Spanish central bank estimated in its monthly economic report that third-quarter gross domestic product was unchanged from the second quarter. Spanish GDP rose 0.2% in the second quarter and 0.1% in the first after six consecutive quarters of contraction. In annual terms, third-quarter GDP rose 0.2%, its first annual increase in eight quarters, the central bank said. The Bank of Spain's GDP estimates are traditionally very close to, if not the same as, official data from the National Statistics Institute, which will give its first reading of third-quarter GDP on Nov. 11. Spain is grappling with the collapse of a decade-long construction boom that has sent unemployment spiraling to 20% and punched a large hole in its public-sector accounts. Following Greece's financial meltdown, fiscally frail countries like Spain and Portugal have faced intense pressure from investors and the European Union to rein in their deficits. Spain responded in May with a series of new austerity measures including public-sector wage cuts and sharp cuts in capital expenditure, and it has allowed all economic-stimulus programs to lapse, like an incentive for new car purchases that ended June 30. These measures came on top of others, already planned, like a two-percentage-point rise in value-added tax, which took effect July 1 and encouraged consumers to bring forward purchases ahead of that date. The Bank of Spain said these measures caused a contraction in third-quarter consumer spending but that once "the effect of brought-forward purchases is over, it's expected the economy will resume its slow recovery." Read more. (Subscription required.)