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By Paul Day and Andrés González
MADRID, April 30 The Spanish government raised
its 2014 economic growth forecast on Wednesday following a
robust start to the year, but is still struggling to persuade
voters that a solid recovery is underway as job creation and
consumer spending remain anaemic.
Spain's economy grew at its fastest quarterly pace in six
years at the start of 2014, data showed earlier in the day.
Gross domestic product rose 0.4 percent from January to
March as the nation gradually pulled away from its second
recession since a property bubble burst in 2008, gutting the
banks and sending the jobless rate to the highest in the euro
zone after Greece.
"This year will mark a 'before and after' in the Spanish
economy; we're going to have growth in employment, in GDP, in
income and, over this (legislative term), we will have reduced
the total number of unemployed," Economy Minister Luis de
The government updated its forecasts for this year to growth
of 1.2 percent, up from a previous projection of 0.7 percent and
last year's contraction of 1.2 percent. The economy will grow
1.8 percent next year and 2.3 percent by 2016, it predicted.
However, the economic improvement has yet to filter down to
many Spanish families and support for the ruling People's Party
is flagging. Opinion polls show the centre-right party will
suffer its worst showing in a European Parliament election in 25
years when voters go to the polls on May 25.
Some economists do not expect the kind of sharp upturn which
the government needs to combat its budget deficit.
"It's hard to see how the economy is going to grow much more
than 0.3 percent on average in the coming quarters, and in that
situation many questions remain such as how you're going to get
substantial increase in revenues to fix fiscal finances and how
you're going to get a large increase in employment" said Bank of
America Merrill Lynch economist Ruben Segura-Cayuela.
Union leaders met Prime Minister Mariano Rajoy on Wednesday,
with a warning that many new jobs in Spain were part-time or on
very low salaries. Many workers who had not lost their jobs in
waves of layoffs over recent years have had their pay
"A salary is no longer a guarantee you can escape poverty,"
Candido Mendez, secretary general of the UGT labour federation
told Spanish state television before meeting Rajoy.
Spain has been in, or near, recession since the decade-long
property boom ended in 2008 and lengthening unemployment lines
have put a massive strain on public finances.
The country emerged from its latest two-year recession in
the second half of 2013. The government has been keen to
announce the end of Spain's worst economic crisis since the
transition to democracy in the mid-1970s.
The banks, which have been through a gruelling restructuring
process, and taken over 40 billion euros ($55 billion) of
European aid over the last two years, are also calling an end to
the crisis, citing improving bad loans data and a leveling out
in house price falls.
Foreign investment is pouring into Spain, driving up the
IBEX blue-chip stocks index by 5.5 percent so far this
year. The country's debt office has already raised 43 percent of
its total borrowing target for the year at record low rates.
However, unemployment rose in the first quarter to 25.9
percent, the public deficit remains one of the largest in the
single currency and domestic spending continues to drag.
Low consumer price rises are also a concern, with the
European Central Bank forced to study extraordinary measures as
inflation across the euro zone is way below its target.
Spanish EU-harmonised inflation was 0.3 percent year-on-year
in April, marking eight months below 0.5 percent and 10 months
below the ECB's target rate of near to, but below 2 percent.
BANKING ON RECOVERY
Ratings agency Standard & Poor's said on Tuesday that
Spanish banks have recognised most of the losses incurred from
the property crash and were poised for better performance due to
reduced economic risks.
"We are seeing a moderate resumption in economic activity,
after a long, deep recession. We therefore expect banks' credit
provisions to decline in 2014 and 2015 and to approach
more-normalized levels by 2016," S&P said.
However, the banks' recovery is not universal, with even the
country's two biggest lenders seeing mixed performance in their
home market in the first quarter.
Spain's No. 2 bank, BBVA, on Wednesday reported
first-quarter results, saying bad loans had stabilised in its
home market but its net interest income - the difference between
interest paid on deposits and interest charged on loans - fell
in the first quarter in Spain.
Top bank Santander said on Tuesday its bad debts as a
percentage of total credit edged up in Spain in the first three
months of the year, although profit improved from a year ago.
An improvement in domestic demand, worth around two thirds
of total economic output, is also likely to be patchy. Retail
sales fell 0.5 percent in March, the largest drop since
December. Sales have grown for only three out of the last 43
"Retail sales were very weak, and that's a little worrying,"
said economist at Citi Jose Luis Martinez. "They may reflect the
continuing weakness of domestic demand, and suggest that the
second quarter will growth less than in the first. We'll have to
wait until GDP breakdown to see what happened."
($1 = 0.7237 Euros)
(Editing by Fiona Ortiz and David Stamp)