No growth in Spanish economy in 3rd quarter

The timid growth of the Spanish economy came to a halt in the third quarter of the year according to figures published by the Bank of Spain (BOE) this Monday. While the economy had grown by 0.2 percent between April and June of this year, the period July-September saw zero growth (0.0 percent). The Bank considers that the continued reduction in internal demand, which is partly a consequence of the almost 5 million people out of work in Spain and the fear that unemployment is going to increase yet further in the coming months, is a factor in growth grinding to a halt. Internal demand dropped by 0.8 percent in the third quarter and although there have been 'slight increases' in business investment, that is also under threat as a result of Spain's banks needing to increase their capital to nine percent as a result of the recent agreements made between EU leaders in Brussels. The BOE highlights that in the third quarter of the year, the Spanish economy has continued to be weakened in an atmosphere of crisis made worse by worries over the sovereign debt in the Euro-zone. The official predictions of the Spanish government were for the economy to grow by 1.3 percent during 2011, although that prediction now looks almost impossible to fulfil and the bank warns that the slowdown in growth could cause problems when it comes to reducing the state deficit. Although figures last week showed the Spanish state deficit continues to shrink, that was due to reductions in expenditure outstripping reductions in money collected by the state, which also fell. Should the economy stagnate, then state earnings through direct and indirect tax will also fail to increase, making it hard to further reduce the deficit without further cutbacks in expenditure, which in turn could lead to a continued fall in internal demand. Nevertheless, the BOE insists that whoever wins the General Election on November 20 will have to take the necessary efforts to ensure the deficit is reduced to 4.4 percent of gross domestic product.