March 20, 2019 / 12:55 PM / 3 months ago

Spanish economy bucks euro slowdown on domestic demand, central bank says

MADRID (Reuters) - The Spanish economy expanded in early 2019 at a pace similar to its growth at the end of 2018, as stronger-than-expected domestic demand offset a slowdown in exports, the Bank of Spain said on Wednesday.

FILE PHOTO: A Spanish flag flutters behind a red traffic light at Plaza Colon square in Madrid, Spain, January 10, 2019. REUTERS/Sergio Perez

Spain’s growth contrasted with Germany’s, the euro zone’s largest economy, which came close to recession in the first quarter. Slower-than-expected expansion has put the European Central Bank on the defensive.

On Monday, ECB Vice President Luis de Guindos said inflation and growth in the region would continue to slow this year, an outlook that has prompted investors to push back expectations for when interest rates would rise to late 2020 from mid-2020.

Spanish gross domestic product, meanwhile, grew 0.6 percent in the January to March period from a quarter earlier, according to central bank forecasts, after 0.7 percent at the end of 2018 and at a similar pace to the first three quarters of last year.

The National Statistics Institute will publish flash gross domestic product data on April 30.

“Spain has not been immune to exterior disturbances, which manifested itself at the end of last year as a notable loss of export strength,” the bank said in its annual report.

“However, the internal dynamism has compensated for the deterioration of external factors to the extent that it has not produced a deceleration in activity as seen throughout the euro zone,” it said.

ROBUST CONSUMPTION

Private consumption in Spain had been especially robust on the back of strong job creation and rising purchasing power thanks to low inflation and falling savings, it said.

The bank saw a continuation of the expansive phase in the medium term as foreign markets improved, noting a boost from the increased competitiveness of Spanish export businesses and good financing conditions amid an accommodative monetary policy.

The Bank of Spain reiterated its forecasts, published in December, for 2019 annual growth of 2.2 percent, 2020 growth of 1.9 percent and 2021 growth of 1.7 percent.

Risks to the forecasts include uncertainty over Britain’s exit from the EU, rising global protectionism and a possible Chinese economic slowdown.

At home, the bank noted that more efforts must be made to reduce the public deficit and debt to protect the economy against potential future shocks.

The bank said its forecast for this year’s public deficit had worsened to 2.5 percent of GDP from a previous forecast in December of 2.4 percent of GDP.

The Socialist government was forced to roll over the 2018 budget to this year after its 2019 budget proposal was defeated in parliament.

Reporting by Paul Day; Editing by Axel Bugge

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