Spain records best perfomance since 2008

Eurozone’s fourth largest economy defies deflationary threat to record its best performance since 2008

spain

Spain posted its first full year of economic expansion since the financial crisis as the country was boosted by a record fall in consumer prices.

The economy grew by 1.4pc in 2014, and 0.7pc in the final three months of the year, exceeding the 0.5pc rise in the third quarter, according to provisional figures from the National Statistics Office.

Annual inflation also fell to a low of -1.5pc in January, the sharpest decline since 1997, and evidence that deflation was providing a boon to economic activity.

Spain has now expanded for the sixth consecutive quarter after undergoing a five-year recession.

The government predicts GDP will rise by 2pc this year, as the effect of falling oil prices provide a fillip for the country’s squeezed consumers.

“The increasingly broad-based recovery suggests Spain is well positioned to take advantage of supportive factors in early 2015, namely lower energy costs, a weaker euro, and a cut in personal and corporate taxes,” said Raj Badiani, economist at IHS Global Insight.

The news comes as the eurozone underwent its biggest ever drop in consumer prices in January, as inflation plummeted to -0.6pc.

Spain’s government has been praised for enacting a series of labour market reforms which seek to make the country more competitive in relation to its eurozone neighbours.

But although the economy may be benefiting from a bout of “good deflation” a prolonged period of falling prices could act as a brake on consumer spending, keeping wages depressed and adding to its debt burden.

Prime Minister Mariano Rajoy also faces the threat from anti-austerity party Podemos in elections held at the end of the year.

At over 23pc, Spain continues to suffer the second highest jobless rate in the eurozone after Greece.

Left-wing Podemos bitterly oppose the swingeing budget cuts and austerity imposed on the country in the wake of the financial crisis.

“The Spanish economy is in a catching-up process, but definitely moving in the right direction,” said Jacques Cailloux, chief European economist at Nomura International in London.

“The decline in oil prices is helping consumer spending in Spain, but this is a one-off. The medium term outlook for wage growth and income generation remains the weak spot.”

Source: The Telegraph

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