UPDATE 1-Spanish economy trundles on in fourth quarter

Thu Feb 27, 2014 4:58am EST

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* Spanish GDP grows 0.2 percent in fourth quarter from previous

* Misses forecasts, but recovery still on track, say economists

* Growth boosted by tentative upturn in domestic demand, investment

By Paul Day

MADRID, Feb 27 (Reuters) - Spain's economy grew between October and December as domestic demand and investments improved, data showed, adding to signs that its recovery from recession is slowly gaining traction.

Gross Domestic Product (GDP) expanded by 0.2 percent in the fourth quarter from the third, its second quarterly expansion in a row, Thursday's final National Statistics Institute (INE) data showed. The economy contracted 0.2 percent year-on-year.

Both figures were below INE estimates given earlier this year of a 0.3 percent quarterly expansion and a 0.1 percent annual drop, though analysts played down the growth gap.

"There's been a small downward revision, but it doesn't change the overall picture dramatically," said Silvio Peruzzo, economist at Nomura.

"The recovery is clearly on track and accelerating with investment and consumer demand improving."

In Spain, domestic demand is worth around two thirds of output and, after a burst property bubble in 2008 left millions out of work, has been a heavy drag on the economy as both consumers and businesses reined in spending.

The economy shrank 1.2 percent in 2013 from a year earlier, its fourth annual contraction in five years and cutting its overall worth to 1.023 trillion euros ($1.40 trillion) - the lowest figure since 2006.

In the fourth quarter, domestic demand had a negative drag on GDP of 0.6 percentage points compared to 2.5 percentage points a quarter earlier. Exports lifted GDP by 0.4 percentage points, down from 1 percent a quarter earlier.

SPENDING GROWTH

Household spending grew in the fourth quarter on an annual basis for the first time since the start of 2011 and while investment remained negative, dragged down by a still weak construction sector, it was the strongest reading in six years.

The return to economic growth in the third quarter and better-than-expected expansion towards the end of the year, prompted the International Monetary Fund and European Commision, to upgrade their forecasts for this year.

Prime Minister Mariano Rajoy said in his state of the nation address earlier this week he saw the economy growing 1 percent this year and 1.5 percent next.

In a further boost for the euro zone's fourth largest economy, which less than two years ago was close to needing billions in international aid, Moody's rating service raised its debt rating for the first time since its 2010 AAA rating was downgraded.

But Spain is still nursing serious imbalances, notably a 26 percent unemployment rate and one of the highest budget deficits in the euro zone.

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