Spanish Economy Flatlined in Third Quarter

Spain’s economy registered zero growth in the third quarter, with output between July and September unchanged compared to the previous three months, and up just 0.8% from the year-earlier period. Gross domestic product grew 0.2% in the previous quarter.

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Domestic spending continued to contract, but was offset by a rise in export demand. Though Greece and Italy have pulled focus in recent weeks, international markets remain concerned over the Spanish government’s ability to meet its debt payments.

Spanish borrowing costs have risen sharply in the past two months, with the yield on the 10-year note peaking at 5.9% on Thursday, up from 5% in early October.

The slowdown threatens Spain’s deficit-reduction goals. The economic figures “add to our view that Spain will struggle and is likely to fall back into recession, if not in the fourth quarter then early next year,” said Ben May, a European economist at Capital Economics in London. “We’ve got unemployment going above 25 percent.”

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Today’s news means the 2011 deficit will be 6.6% of GDP instead of the targeted 6%. It will also postpone the reduction of the nation’s 23% unemployment rate, according to the European Commission, and increase the relative weight of its debt burden as the government faces lower income tax revenues and more benefit payouts.