Spain admits it will miss 2011 economic growth target

Spain's Socialist government admitted for the first time Wednesday it will miss its 2011 economic growth target, just four days before an expected election drubbing. Spain's sovereign borrowing costs inched up meanwhile, raising the stakes for the next government amid tension on international markets about whether the company could fall victim to the eurozone debt crisis. The government had refused to budge from its target of 1.3 percent growth this year despite a string of weak data and a eurozone debt crisis that forced steep spending cuts. In a final news conference before general elections Sunday, Deputy Finance Minister Jose Manuel Campa conceded that 2011 growth would come in far below the official goal. "We have to expect growth in this quarter similar to what we have had up to now, so average growth for the year will be close to what we have now," he said. Annual economic growth in the third quarter was 0.8 percent, the National Statistics Institute said. When comparing economic output to the level of the previous three months, growth slumped to zero in the third quarter from 0.2 percent in the second, the institute said. Exports and its hugely important tourism industry kept Spain's head above water in the third quarter, according to the official report. "The external sector continues to be the main engine of growth," the statistics institute said. Finance Minister Elena Salgado had previously skirted around the 1.3-percent target, saying only that if she "was to redo the forecasts today, they would of course be different to those we did before summer." But the administration did not revise the forecast ahead of the November 20 elections, which the conservative opposition Popular Party is widely expected to win by a landslide. The Bank of Spain had already tipped growth at 0.8 percent for the year. Spain's economy, dragged down by a 21.5-percent unemployment rate, may now be sliding back into recession barely two years after escaping the last one, analysts say. Goldman Sachs and the French statistics institute INSEE both predict that the Spanish economy will shrink by 0.2 percent in each of the next two quarters, meeting the broad definition of a recession. French bank Natixis sees declines of 0.2 percent in the final quarter of 2011 and 0.1 percent in the first quarter of 2012. Spain only emerged from an 18-month recession at the start of 2010 after a property bubble collapse, which destroyed millions of jobs and left banks with mountains of bad loans. A sense of crisis on the markets has hounded the government's final pre-election days, with Spain's key sovereign bond yield breaking euro-era highs on Tuesday. The risk premium -- the extra borrowing rate investors demand for Spain's 10-year government bonds compared to Germany's -- rose again to a new high of 460 basis points on Wednesday. "The next government faces an uphill battle to prevent Spain from being dragged deeper into the eurozone debt crisis," said Ben May, an economist at Capital Economics in London, in a note. "If Spanish yields surge higher, forcing the government to seek a rescue package, the region-wide debt crisis will become more expensive and complex to solve."