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UPDATE 2-Spain's wealth gap widens as economy powers ahead
May 28, 2015 / 11:18 AM / 2 years ago

UPDATE 2-Spain's wealth gap widens as economy powers ahead

* Spain Q1 GDP grew 0.9 pct q/q - INE data

* Consumer spending propels turnaround

* But inequalities and income gaps are rising

* Trend underpins change in political landscape (Recasts with election prospects, data on social inequality, adds quotes)

By Sarah White

MADRID, May 28 (Reuters) - Government and consumer spending helped Spain's economy power ahead in the first quarter, data showed, though evidence is also growing that the recovery has increased inequalities rather than reducing them as it has picked up pace.

The economy, and especially a labour market in which nearly one in four remains out of a job, will be a key battleground in a national election due in November.

Leaders of the governing centre-right People's Party (PP) have said the recovery would gather pace and deliver around 600,000 more jobs this year.

But the PP suffered big losses in local elections on Sunday, with many voters opting for change in the shape of new parties - the market-friendly Ciudadanos ('Citizens') and anti-austerity Podemos ('We Can').

Growing divisions between the haves and have-nots have fuelled the discontent, forming a potential longer-term drag on the turnaround as well as threatening to undermine Prime Minister Mariano Rajoy's bid for a second term in office.

"A key electoral battle will be to address the current standard of living crisis," Raj Badiani, an economist at IHS Global Insight, said in a note.

"The regional and municipal election results highlight the challenge of making the recovery more inclusive to pacify disgruntled voters, who have endured acute income and wealth losses during the crisis."

Spain's economy, which began emerging from a long recession in mid-2013, grew 0.9 percent between January and March, its fastest quarterly rate in more than seven years, National Statistics Institute INE said on Thursday, confirming preliminary readings.

That puts Spain ahead of Germany and France in terms of growth rates, and the government is projecting that pace will continue in the second quarter and help the economy surge 2.9 percent for the year as a whole.

YOUNG SWITCH VOTES

An uptick in private consumption, after Spaniards slashed spending during the crisis, is going a long way towards helping the economy rebound. Retail sales grew for the ninth straight month in April, INE also said on Thursday.

Public spending also rose strongly in the January-March period, after shrinking on a quarterly basis for most of the past two years.

Yet surveys show a higher number of Spaniards are struggling to make ends meet, and the prospects for young people in particular, who represent a big chunk of voters backing Podemos and its allies, remain bleak.

Of Spaniards aged 15 to 29, nearly 27 percent neither work nor study, one of the highest rates among advanced economies, the Organisation for Economic Co-operation and Development said this week in a study based on 2013 data.

It also highlighted that the young in Spain were now at a higher risk of poverty than the elderly, the opposite of what used to be the case.

"Spain has a system that gives a lot of protection to older people but leaves the young a lot more vulnerable, and those that switched votes are the young," said Narciso Michavila, head of polling firm GAD3. (Additional reporting by Raquel Castillo; Editing by Julien Toyer and John Stonestreet)

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