By Paul Day and Sarah White
MADRID (Reuters) - Spain's economy expanded at a faster-than-expected pace in the first quarter of 2016, official data showed on Friday, despite politicians failing to form a government after a December general election that did not hand a majority to any one party.
Spain now faces an unprecedented second election in June raising fears the resulting months of lost leadership could chip away at an economic recovery and political will to pass pending structural reforms in areas like employment policy.
Output grew 0.8 percent in the January to March period, the same quarterly expansion as that registered in the previous quarter, the National Statistics Institute (INE), beating Reuters' and Bank of Spain forecasts of 0.7 percent.
The caretaker government of the center-right People's Party (PP) announced bullish targets for growth later on Friday at their weekly press conference, estimating the economy would grow at 2.5 percent in 2018 and 2019, comfortably above the current euro zone average.
The services industry, a huge motor for jobs especially the peak tourist season in the summer months, picked up speed in March, surveys show, with Spain's robust growth bucking the trend of weakening global expansion.
In a country hugely dependent on energy imports, tumbling oil prices worldwide have helped extend the recovery after Spain began clawing its way back from a double-dip recession in mid-2013.
A massive stimulus program from the European Central Bank has also kept a lid on borrowing costs.
Yet signs that businesses are holding off on investments and consumer confidence is wilting have fueled concerns growth could start stalling at a time when Spain is coming under increasing pressure to reduce one of Europe's biggest public deficits.
Spain's acting center-right government has already lowered 2016 annual growth projections to 2.7 percent from 3 percent previously, citing a weaker global climate.
Meanwhile, the economic recovery has yet to trickle down to many, and unemployment still runs at 21 percent of the workforce, fuelling discontent.
The acting government on Friday gave optimistic forecasts that the unemployment rate would fall to 14 percent by 2019.
Opinion polls so far point to a similar deadlock in the election re-run, after December's ballot produced the most fragmented result for decades and stripped the People's Party of its majority.