UPDATE 1-Austerity-hit Spain economy likely stagnated in Q3

* Bank of Spain says Q3 growth likely zero from Q2

* First official forecast for euro zone state

* Sept industrial output unexpectedly falls 1.4 percent y/y

* Spain/Germany bond spread widens beyond 200 bps

(Adds detail, comment)

By Paul Day

MADRID, Nov 5 (BestGrowthStock) – The Spanish economy likely
stagnated in the third quarter, data showed, held back by broad
austerity measures designed to cut the country’s fiscal gap and
as industrial output unexpectedly fell in September.

Gross domestic product was unchanged from the second quarter
and grew 0.2 percent from a year earlier, the first annual
expansion after seven straight quarters, the Bank of Spain
forecast in its monthly bulletin on Friday.

“Fiscal austerity is hitting — the end of stimulus measures
and a rise in value added tax is having an effect. But Spain is
being helped by a global recovery. Without that it would be in a
much worse position,” said economist at HSBC Astrid Schilo.

Spain’s economy inched out of an 18-month recession in the
first quarter and has since crawled along aided by strengthening
exports but with little support from weak domestic demand and a
collapsed construction industry.

Sweeping austerity measures to rein in public spending,
inflated by anti-crisis stimulation measures over the last two
years, could prompt a double dip recession in the weaker euro
zone economies, some economists believe.

The usually accurate Bank of Spain GDP forecast is the first
official third quarter growth estimate from a euro zone country.
Official preliminary data will be released Nov. 11.

Stagnation in the third quarter — when some economists
believe Spain’s economy in fact contracted — was temporary and
mostly due to the distortion of accelerated consumer spending
ahead of value-added tax hikes in July, the bank said.

“A continued positive effect from external demand and the
progressive dynamism of the private sector are indispensible for
a strong enough recovery to create jobs,” the central bank said.
The key spread between Spanish government 10-year
(ES10YT=TWEB: ) debt and German bunds (DE10YT=ECI: ) jumped on
Friday to 205 basis points, the highest since July 12, from
around 190 bps on Thursday.

TOUGH QUARTER

Spanish industrial output unexpectedly shrank in September,
data showed, putting further pressure on an already fragile
economy at the end of a tough quarter that has seen worsening
indicators in all major sectors.

Output fell 1.4 percent in September year on year, the
National Statistics Institute said on Friday, well below
forecasts for a rise of 0.8 percent and a revised August rise of
1.6 percent.

“This is looking pretty indicative of where growth is going
in ‘ClubMed’ at the moment. The bond market is cracking the whip
and making the peripheral economies do exactly what they
shouldn’t be doing right now, which is cutting spending,” said
Eric Wand, analyst at consultancy 4Cast.

The output data follows a Markit survey of purchasing
managers for the manufacturing and services sector that showed
activity in both areas had taken a turn for the worse at the end
of the third quarter.

Economists believe the economy contracted by 0.1 percent in
the third quarter, according to the most recent Reuters survey.

“We have to acknowledge the usually accurate forecast from
the Bank of Spain and assume that stronger exports offset weak
domestic demand. I am very curious to see the details as weak
construction and services data paint a much worse picture of the
economy,” said Unicredit economist Tullia Bucco.
(Additional reporting by Nigel Davies, Manolo Ruiz; Editing
by John Stonestreet)

UPDATE 1-Austerity-hit Spain economy likely stagnated in Q3