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Spain's GDP upward revision fuels uncertainty on real growth momentum

By Reuters

<div> <p>By Belén Carreño</p> <p><span class="caps">MADRID</span> -Spain’s economy grew 2.6% in the third quarter, faster than an 2% initial estimate, driven by higher than expected household consumption, the <span class="caps">INE</span> statistics institute revealed, although annual growth may still fall short of the government’s target. </p> <p>Summer is the key quarter for the tourism-dependent Spanish economy. Thursday’s new data showed activity gaining momentum in July-September as Spain opened up to visitors and rolled out vaccines, even though it is still short of pre-pandemic levels.</p> <p>Private household consumption grew by 1% in the third quarter over the previous quarter, well above the 0.5% contraction estimated by the <span class="caps">INE</span> in its flash data in late October. The swing largely explains the upward revision for <span class="caps">GDP</span>.</p> <p>In September, the <span class="caps">INE</span> made a surprise sharp downward revision of growth in the first and second quarters of the year that threw out all forecasts and triggered a wave of downward revisions.</p> <p>Since then, Spanish economists have been locked in intense debate over whether the metric is succeeding in capturing economic activity after the 2020 lockdowns brought a record slump of 10.8%. </p> <p>For the first time in the Mediterranean nation, there has been a decoupling between employment, already above 2019 levels, and robust tax collection, and economic growth, which has lagged behind.</p> <p>Last week, the Bank of Spain’s chief economist, Oscar Arce, said structural post-pandemic changes such as teleworking may not record hours worked accurately, and the shift online of many activities and a decline in the use of cash could bolster tax collection without necessarily reflecting in <span class="caps">GDP</span> statistics.</p> <p>Raymond Torres, chief economist at the think tank Funcas, added that the recovery of industries with low productivity, particularly hospitality, does not boost <span class="caps">GDP</span> as much as others.</p> <p>In recent days, the Bank of Spain and <span class="caps">IMF</span> have both cut their growth forecasts for 2021 to 4.5% and 4.6% respectively while the government maintained its forecast at 6.5%.</p> </div>