Spain central bank warns of sluggish growth

Spain's economy is showing anaemic growth in the third quarter, the central bank warned on Wednesday, undercutting government hopes for a modest recovery. Spain's weak economy and towering 20.89-percent unemployment rate are a serious concern for world markets, which fear Madrid will struggle to erase the red ink in its accounts and pay off its long-term sovereign debt. Analysts said the latest figures cast in serious doubt the government's target for growth of 1.3 percent this year. "The data available for the third quarter of the year show generally lethargic activity," the Bank of Spain said in a monthly economic report, noting in particular that shoppers are closing their wallets. On a quarter-to-quarter basis, Spain's economy grew 0.4 percent in the first three months of 2011 and only 0.2 percent in the following three months, official data show. When compared to the same period last year, growth in the second quarter was just 0.7 percent. The overall picture cast doubt on the government's target of 1.3 percent growth for 2011 overall and threw into peril its promises to cut the deficit so as to regain investors' trust, analysts said. "The government's growth forecasts are not realistic, for this year nor the next. They will be impossible to achieve," said analyst Soledad Pellon, at trading group IG Markets. "If the government's growth forecasts are not fulfilled, the deficit targets probably won't be either, which is more important." The central bank, the International Monetary Fund, Standard & Poor's and major bank BBVA have all forecast much lower economic growth of 0.8 percent for Spain this year. Unlike Italy, Portugal and France, Spain's Socialist government has declined to lower its own forecasts ahead of a November 20 general election, widely expected to hand power to the conservative opposition. The government's spokesman Jose Blanco on Friday said Madrid maintained its growth targets but acknowledged that "in a new and difficult climate, they will be difficult to achieve." Analyst Jesus Castillo of Natixis bank, forecast that Spain would fall into recession with negative growth in the last quarter of 2011 and the first quarter of 2012, and weak 0.4 percent growth for 2012 overall. The slower growth would make the government's goal of reducing the annual deficit to six percent of gross domestic product in 2011 from 9.24 percent in 2010 "difficult to achieve," Castillo added. The government releases official third-quarter economic growth figures in mid-November just before the election. "They will not have to answer when the real figures come out," Pellon said. "They are leaving it to the next government." Spain enjoyed a decade of strong growth driven by a property bubble that burst in 2008, combining with a global financial crisis to throw the economy into recession. Though the economy has stabilised since, financial instability in Greece has raised new doubts about sovereign debt in fragile eurozone economies, including Spain's. Spain is suffering from high unemployment and cuts to social spending, which are beginning to bite. Exports including tourism are the main driver of economic growth, latest figures show.