Sunday, February 13, 2011
By DAVID ROMAN for the WALL STREET JOURNAL
MADRID—Spain's economy bounced back slightly in the fourth quarter, but contracted for the whole of last year and is still growing at a slow pace, official data showed Friday.
Gross domestic product in the euro zone's fourth-largest economy rose 0.2% in the fourth quarter from the third quarter, the INE statistics institute said in its first estimate of gross domestic product for the quarter.
Compared with the year-earlier period, growth was up 0.6%, the fastest rate since the third quarter of 2008, when Spain's economy went into a tailspin amid a massive real estate bust, but still a low rate compared with the rest of the euro zone and the developed world. For the whole of 2010, the economy contracted 0.1%.
Lavinia Santovetti, a Nomura economist, said quarterly growth—in line with an earlier Bank of Spain estimate—was slightly above expectations for a 0.1% increase, and was probably driven by an increase in exports as Spanish markets in the euro zone and the U.S. recover, coupled with weak imports as domestic demand remains subdued.
INE will publish full fourth-quarter GDP numbers on Feb. 16., with a GDP breakdown.
Ms. Santovetti added that the Spanish number doesn't change Nomura's forecast for 0.4% euro-zone growth in the fourth quarter from the third quarter. Overall euro-zone data will be released on Feb. 15.
Spain's economic growth was flat in the third quarter, compared with the second quarter.
European stock markets rallied broadly after a successful Portuguese bond auction allayed near-term fears about the spread of the euro-zone debt crisis.
Portugal successfully sold €1.25 billion ($1.62 billion) of government bonds, in what was viewed as a test of investor sentiment.
"It's one of those days where there's been a wave of euphoria passing through the market," said Justin Urquhart Stewart, co-founder of Seven Investment Management.
The Stoxx Europe 600 Index rose 1.4% to end at 285.79, hitting its highest level since September 2008.
In Athens, the ASE Composite stock index soared 5%. National Bank of Greece rose nearly 8%. In Madrid, the IBEX 35 index surged 5.4% to 10101.20, driven by financials. Banco Santander and rival Banco Bilbao Vizcaya Argentaria each soared 10%. Italy's FTSE MIB index rose 3.8% to 21116.30. UniCredit rallied 9.7% and Intesa Sanpaolo soared more than 10%.
Despite Wednesday's rally, analysts expressed caution. Oliver Gilvarry, head of research at Dolmen Stockbrokers, said the underlying problems for indebted euro-zone nations remain.
"Portugal is paying 4% on its two-year debt when underlying growth this year is likely to be negative. That's unsustainable," Mr. Gilvarry said.
Elsewhere, the French CAC 40 index ended up 2.2% at 3945.07, helped by aerospace groupEADS. Its shares rose 2.1% after its Airbus unit announced an order for 180 aircraft from Indian budget carrier IndiGo
In Germany, the DAX 30 index gained 1.8% to 7068.78. The U.K.'s FTSE 100 index closed up 0.6% at 6050.72.
Asian markets strengthened on Wednesday as resource shares got a lift from a jump in commodities prices.
Hong Kong's Hang Seng Index rose 1.5% to 24125.61, China's Shanghai Composite added 0.6% to 2821.31 and Australia's S&P/ASX 200 advanced 0.3% to 4724.21. India's Sensex snapped a six-day losing streak, rising 1.8% to 19534.10. Japan's Nikkei Stock Average ended up 0.02% at 10512.80.
In Seoul, the Kospi rose 0.3% to 2094.95 amid caution ahead of the Bank of Korea's policy meeting and interest-rate decision on Thursday.
Shares in the Ruentex group of companies were higher after American International Grouppicked the consortium to buy its Taiwan life-insurance unit. Supermarket operator Ruentex Development rose 2.7%, cement-and-chemical-fiber maker Ruentex Industries added 4.8% and footwear maker Pou Chen climbed 3.2%.
Analysts cautioned that the sale could be merely a temporary reprieve, saying that the high yield demanded by investors was unsustainable in a country that lacked strong economic growth.
¶“It still looks like a matter of when, not if, Portugal is bailed out,” said Richard McGuire, fixed-income strategist at Rabobank in London. “An interest rate of 6.7 percent is still high for sustainable public financing.”
¶Portuguese officials disagreed, describing the auction as a success that vindicated their strategy of financing its debt through the markets rather than requesting aid from Europe’s financial rescue fund.
¶Portugal sold bonds valued at 1.25 billion euros, including 599 million euros maturing in 10 years at an average yield of 6.72 percent.
¶That yield is below the levels of the previous sale in November, though still high for Portugal’s struggling economy. Portugal has passed a variety of austerity measures that include public sector wage cuts, tax increases and a freeze on pension rates.
¶Last year, both Greece and Ireland were forced to apply for rescue financing within a month of breaching the 7 percent level.
¶Bond auctions in Spain and Italy on Thursday were expected to provide furthers signs of whether the euro zone debt crisis was temporarily calmed or in danger of spreading to bigger economies. Spain will offer bonds worth 3 billion euros ($3.89 billion), while Italy will offer bonds up to 6 billion euros.
¶As Portugal gained some respite, European officials increased pressure to expand the size of the rescue fund, saying it would provide a longer-term solution.
¶The “financing capacity must be reinforced and the scope of its activities widened,” José Manuel Barroso, president of the European Commission, said Wednesday in Brussels. He added that it was “perfectly possible” to come to a decision by Feb. 4, when European Union leaders are scheduled to meet.
¶Mr. Barroso appeared to be emboldened by the success of the Portuguese debt sale, which allowed him the political space to go on the offensive about the fund after weeks of private discussions about how to defuse the crisis.
¶The Portuguese auction, coupled with European Union efforts to expand the bailout fund, helped markets rise in the United States and Europe. In Spain, the main stock market index increased 5.4 percent Wednesday, its biggest daily gain since the bailout of Greece last spring.
¶Fernando Teixeira dos Santos, the Portuguese finance minister, said that his country’s bond sale was “clearly a success.” He cited not only the high demand — investors bid for 2.6 to 3 times the number of bonds on offer — but also the fact that 80 percent of the bonds were bought by foreigners. That would allow the government to continue to “diversify our investor base,” he said.
¶Analysts took the comment as evidence that much of the foreign buying had come from Asia, given recent commitments by Japan and China to help euro zone countries finance their deficits.
¶José Sócrates, the prime minister of Portugal, has maintained that his country can meet its 20 billion euros in financing needs this year — equivalent to 11 percent of its gross domestic product — without a bailout from its European Union partners or theInternational Monetary Fund.
¶“Portugal won’t request any financial help for the simple reason that it doesn’t need it,” Mr. Sócrates said Tuesday.
¶Those assurances are likely to be met with further market skepticism, however, especially in light of a forecast on Tuesday from the Portuguese central bank, which said the country would go back into recession this year. A new slump would make it more difficult for the government to close a gaping budget deficit and meet its obligations.
¶“One auction result doesn’t mean the crisis is over,” said Charles Diebel, a strategist at Lloyds Bank Corporate Markets in London. “It’s just one hurdle amongst many.”
¶European Union officials have been working to prepare emergency loans to Portugal if a rescue becomes necessary. Analysts have said a bailout could require as much as 70 billion euros. Greece received a 110 billion euro rescue package last spring, while Ireland got an 85 billion euro bailout in December.
¶Vasco d’Orey, an independent Portuguese economist, said the bond auction meant that “the government is now off the hook in terms of public debt refinancing, at least for the first quarter for sure.” However, he added, “the next big hurdle is the refinancing needs of the banking system — and there I’m really not sure what will happen.”
¶Should Spain also find strong demand for its bond sale on Thursday, investors’ concerns are expected to shift to the financing needs of the banks, which have been shut out of the markets and have a significant exposure to a collapsed real estate market.
¶Mr. Barroso’s push to expand the bailout fund may signal his desire to assume a bigger role in steering the crisis. He has stuck his neck out on the issue before, urging support for Greece last spring before Germany was ready to agree to a bailout.
¶Chancellor Angela Merkel of Germany appeared to support the principle of strengthening the bailout fund, though she addressed it in the context of bolstering the euro. “We support whatever is needed to support the euro, also with respect to the rescue fund,” she said Wednesday at a news briefing in Berlin with Prime Minister Silvio Berlusconi of Italy, Bloomberg News reported.
¶François Baroin, the budget minister, speaking for the French government in Paris after a regular meeting of ministers, struck a frostier note, however. “We consider that the fund as it stands today is sufficiently big to meet requests made by this or that country,” he said, according to Reuters.
¶Some governments argue that extending the capacity of the fund sends a signal to the markets that the European Union expects Portugal, and maybe Spain, to call upon it and could therefore be self-defeating. But, after the comments Wednesday, the markets could well react negatively if there is no agreement at the Feb. 4 summit meeting.
¶This article has been revised to reflect the following correction:
¶Correction: January 14, 2011
¶An article on Thursday about the results of a bond auction by Portugal misstated the characteristics of some of the bonds. The sale, valued at 1.25 billion euros, included 599 million euros in bonds maturing in 10 years, not 699 million euros in bonds maturing in five years.