Spain Shows Renewed Momentum as Recovery Accelerates

(Bloomberg) -- The Spanish economy showed signs of renewed momentum in the first quarter with growth accelerating faster than expected.

Output grew 0.8 percent in the three months through March, the National Statistics Office said Friday in a preliminary report. That compares with 0.7 percent in the fourth quarter and beats the median estimate in a Bloomberg survey of economists predicting growth of 0.7 percent. From a year ago, the economy expanded 3 percent, the statistics office added.

The latest check on the Spanish recovery follows a slew of economic upgrades to GDP projections by the International Monetary Fund, the Bank of Spain and the administration of Prime Minister Mariano Rajoy. The three institutions project growth at 2.6 percent or more in 2017 as intense job creation and a renewed boost from exports keep the recovery going into its fourth year.

Economy Minister Luis de Guindos said Friday the Spanish economy will grow an average of 2.5 percent annually over the next four years while unemployment falls to 11.2 percent by the end of 2020. The latest forecast will be included in the economic plan the Spanish government will deliver to officials at the European Commission. The plan also contemplates a deficit reduction to 2.2 percent in 2018 from 4.5 percent in 2016.

While the report didn't break down components of GDP, economists expect to see a rebalancing between external and internal demand in the quarter as household spending moderates with pent-up demand running out and tailwinds such as cheaper energy prices fade. With a government now fully in place after a year of political limbo, public spending was also seen rising in the quarter, according to Madrid-based BBVA.

A separate release said retail sales on a seasonally adjusted annual basis rose 0.9 percent in March, beating a Bloomberg survey calling for a 0.4 percent increase and signaling further momentum from consumer spending. Retail sales climbed 0.4 percent annually in February.

Even so, domestic political risks have not dissipated entirely. The Rajoy administration is facing its first major test as a minority government as it seeks to reach a cross-party deal that can get its budget for 2017 approved in parliament. While the government insists approving the bill is crucial to nurture economic growth, project stability and deliver on investment pledges for key ministries, Rajoy doesn't have enough support yet.

Rajoy's plea for stability has been jeopardized by a series of high-profile arrests this month, including the former Madrid regional president of his People's Party, in connection with a corruption investigation into a water company managed by public officials.

--With assistance from Harumi Ichikura and Chiara Albanese

To contact the reporter on this story: Maria Tadeo in Madrid at mtadeo@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Kevin Costelloe, Ross Larsen