Mon, Sep 05, 2016 - Page 14 News List

Undeterred by political deadlock, firms flock to Spain

Bloomberg

In Spain, nurturing the economy is so far proving easier than forming a government.

Corporate investment has helped sustain growth this year, even as efforts to establish a government continue to stumble eight months on from a first round of general elections in December last year.

With the political deadlock set to drag on after acting Spanish Prime Minister Mariano Rajoy lost a confidence vote in parliament on Friday, the strength of the recovery might be put to the test.

“Up until now, no one has altered investment decisions because of the political context,” Madrid-based think tank AFI economist Daniel Fuentes said. “That may change if we go to third elections.”

Investment in capital stock such as factory equipment jumped 2.2 percent in the second quarter as exports climbed 4.3 percent. The economy grew 0.8 percent — more than twice the eurozone’s pace of 0.3 percent — while adding 484,000 full-time jobs compared with the same period last year.

More flexible employment laws and falling labor costs have helped Spanish companies to grow as they also benefit from external factors including lower oil prices and European Central Bank stimulus.

Rajoy’s allies have been ratcheting up concerns about the fallout on the economy if Spain cannot name a government.

Acting Minister of the Economy and Competitiveness Luis de Guindos has said that an apparent decline in demand for credit from small and medium-sized enterprises (SMEs) could be an early sign that economic momentum is waning.

Loans of 250,000 euros to 1 million euros (US$278,262 to US$1.12 milion) to companies for up to one year, an indicator of SMEs’ credit demand, slipped 5.8 percent in July from June, according to Bank of Spain data.

Spain’s fiscal situation offers an additional challenge: Parliament needs to pass a budget before the end of this month to ensure it can meet its financial planning obligations with the EU.

Meanwhile, the nation’s public works ministry and state companies said the value of contracts fell 20 percent in the first half as the political paralysis dragged on.

For now, many companies continue to invest in their business as they keep an eye on political developments — or lack of them.

Carbures Europe SA is pressing ahead with the expansion of its factory making carbon fiber car parts at its Burgo de Osma plant.

The company has set aside funds to add a third production line, company chairman Rafael Contreras said.

So far, the political stalemate in Spain has not affected the company’s investment plans for the short term, he said.

“We want to keep expanding our capacity and we will take into account the stability of the country as we take these decisions,” Contreras said.

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