Spain's economy stalled in the third quarter, undermining the country's efforts to shield itself from the sovereign debt crisis after Spanish and Italian borrowing costs surged to records.
Gross domestic product (GDP) was unchanged from the previous quarter, when it expanded 0.2 per cent, the National Statistics Institute said today.
From a year earlier, the economy expanded 0.8 per cent. The Bank of Spain estimated on October 31st that the economy stalled in the third quarter and grew 0.7 per cent on the year.
The slowdown threatens Spain's budget-deficit goals, the European Commission said yesterday, meaning the government that emerges from the general election on November 20th may have to accelerate spending cuts to prevent the nation becoming the next victim of the debt crisis.
The People's Party, which polls show will win, has pledged to regain Spain's AAA rating and tame borrowing costs without raising taxes or cutting pensions. The extra yield on Spanish 10-year bonds compared with German equivalents rose to 408.9 basis points today, from 408.6 yesterday.
Spain pays 5.9 per cent to borrow for 10 years, even as the European Central Bank supports the market with bond purchases. Spain's economy will grow 0.7 per cent this year and next, the Brussels-based commission forecast. It said the "emergence of a less favorable macro-economic scenario" means the 2011 deficit will be 6.6 per cent of GDP, instead of the 6 per cent targeted.
A cooling recovery will also postpone the reduction of a 23 per cent unemployment rate, the European Union's highest, and increase the relative weight of the nation's debt burden, according to the commission. PP leader Mariano Rajoy would not stray from the 2012 deficit target of 4.4 per cent of GDP "under any circumstances," he said on September 15th. He pledges tax breaks for small companies and an overhaul of the financial system to steer the economy back to growth.