* Spain quarterly GDP falls, but less than forecast
* Consumer prices jump 3.5 pct in October
* 'Stagflationary' spiral adds pressure on Spain to request
* Any hint of upturn is 'a mirage', says economist
By Paul Day
MADRID, Oct 30 Spain fell deeper into recession
in the third quarter and prices rose sharply in October, piling
pressure on the government to revive a paralysed economy as it
stalls over requesting aid.
Prime Minister Mariano Rajoy is in no hurry to apply for a
politically humiliating financial rescue that would kickstart an
ECB bond-buying programme and ease financing costs. But the
worsening economy, along with spreading civil unrest, may force
Numbers published on Tuesday added to evidence that the
country is trapped in a 'stagflationary' spiral of shrinking
growth, high inflation and high unemployment.
Gross domestic product shrank for the fifth straight quarter
between July and September, dropping 0.3 percent, while consumer
prices rose by 3.5 percent year-on-year in October, the two sets
of National Statistics Institute data showed.
Elected just under a year ago on an austerity ticket, Rajoy
has signed off on a belt-tightening programme worth over 60
billion euros through to the end 2014 to cut the public deficit.
But the spending cuts have dented investment while tax rises
have hit consumers' pockets and driven prices higher.
The cutbacks have also led to increasingly frequent protests
focused on Madrid and fuelled already strong separatist
sentiments, notably in the powerful northeastern province of
The euro zone's fourth largest economy is at the centre of
the bloc's debt crisis due to concerns the government cannot
control its finances. Many investors view the 2013 budget, which
aims to cut the deficit to 4.5 percent of GDP from over 9
percent last year, as based on overly optimistic economic
Third quarter GDP shrank more slowly than the 0.4 percent
rate that was expected, making end-of-year growth targets easier
But any suggestion that that marked an upturn was "a
mirage," said Estefania Ponte, an economist at Madrid-based
broker Cortal Consors.
"It does not mean the economy is doing better, but only
shows the families have brought forward purchases ahead of the
Madrid enforced an across-the-board hike in sales tax on
Sept. 1 as part of the austerity programme. That contributed to
the sharpest monthly fall on record in retail sales in
Spain's refinancing costs on international debt markets
soared to euro-era highs in July but have since eased after the
European Central Bank announced its sovereign bond-buying
programme for countries that ask for help.
The premium investors demand to hold Spanish ten-year debt
over equivalent German paper initially fell on
Tuesday's growth data before rising back to around 419 basis
points, in line with Monday's close.
With debt premiums now at more manageable levels, Rajoy
seems reluctant to apply for an aid programme that might bring
with it deeper austerity measures that would further hobble the
recovery and fuel protests.
On Monday Rajoy met with Italian Prime Minister Mario Monti,
and in a news conference afterward maintained his ambivalence
over an aid application. But he omitted previous demands to know
more details of the bond-buying plan before making up his mind.
On an annual basis, the economy shrank 1.6 percent, in the
third quarter suggesting Spain was in line to meet its
end-of-year GDP target.
But that did little to allay concerns that the government
will fail to meet its deficit target.
"If they can't hit deficit goals when meeting growth
targets, what's the shortfall going to look like next year? This
calls for more realistic, looser fiscal targets," economist at
Deutsche Bank Gilles Moec said.
"Naturally, this type of manoeuvre would be easier to
implement under the (European aid mechanism) ESM/ECB umbrella."
Parliament will invite ECB chief Mario Draghi to a meeting
with lawmakers to discuss the bank's bond-buying programme, a
spokeswoman at the lower house said on Tuesday.
EU-harmonised consumer prices rose by 3.5 percent
year-on-year in October, topping a Reuters forecast of 3.4
percent. The figure was unchanged from September.