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Spain's cracks are starting to show, warns think-tank
19 May 2011 @ 00:21

A think-tank has warned that the markets' optimism over Spain is misplaced and that a "modest" growth in first quarter GDP could be misleading.

Despite Spain's economy growing by a 0.3 per cent in the quarter of this year, Capital Economics warned Spain could be drawn further into the eurozone crisis, with "potentially disastrous" consequences for the wider region.

Spain's GDP first quarter growth was modest but "by no means disastrous" but the think-tank claimed its expenditure breakdown was "less than encouraging".

Ben May, European economist, said although household spending was unchanged in Q1 after posting "healthy quarterly rises" in 2010, "real" labour incomes are set to "fall sharply" this year.

He said: "This, coupled with tighter fiscal and monetary policy, is likely to prompt households spending to fall outright over the remainder of the year."

Read the rest of the article at FT Adviser

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