Spain Returns To Recession In Q1

Spain Returns To Recession In Q1




The Spanish economy slipped back into recession in the first quarter of 2012, making the government's job of meeting the deficit targets even tougher amid the public anger against the deepening austerity and record-high unemployment.
Gross domestic product contracted 0.3 percent quarter-on-quarter in the first quarter, the statistical office INE said Monday. This followed a 0.3 percent fall in the fourth quarter of 2011, which was the first decline in activity since the final three months of 2009.
The country is now in a technical recession, which is commonly defined as two consecutive quarters of economic contraction.
However, the latest result was better than the 0.4 percent decline estimated by the Bank of Spain last week. Economists had expected a 0.5 percent drop.
Annually, the GDP fell 0.4 percent following a 0.3 percent expansion in the previous quarter. Economists had forecast a 0.6 percent fall. Bank of Spain had estimated a 0.5 percent annual fall in GDP.
The latest slump in economic activity was led by a fall in domestic demand, according to the statistical office. Foreign demand contributed positively to the overall output.
The news adds to a string of worrying events for the Spanish economy over the recent weeks. Standard and Poor's downgraded Spanish credit ratings by two notches on Thursday saying that economic contraction and the need to support banks will put the country's public finances in peril.
Spain's borrowing costs keep rising as the economic situation worsens. The country's 10-year borrowing costs surged to over 6 percent earlier this month, close to levels widely seen as unsustainable, triggering concerns that the euro member will be forced to seek an international bailout.
After missing the last year's budget deficit target, Prime Minister Mariano Rajoy's government committed to a target of 5.3 percent of GDP in 2012, higher than its agreed target of 4.4 percent. The government aims to bring the deficit to 3 percent of GDP in 2013.
Developments in the Spanish economy over the coming quarters will be subject to uncertainty and to downside risks associated with the possible ups and downs of the sovereign debt crisis, the central bank said in the report last week.
The government forecasts 1.7 percent contraction for the economy this year, before expanding 0.2 percent in 2013. The International Monetary Fund forecasts the economy to contract 1.8 percent this year and grow by 0.1 percent in 2013.
The ongoing drag from real estate and the sheer scale of Spain's planned fiscal adjustment mean that the recession will almost certainly deepen in the coming quarters, pushing unemployment to even more dramatic highs, Martin van Vliet, an economist at ING Bank NV said.
Spain has the highest unemployment in Eurozone with nearly one in four out of work. The unemployment rate rose to 24.44 percent in the first quarter from 22.85 percent in the fourth quarter of 2011, according to official data released Friday.
Tens of thousands Spaniards took to the streets on Sunday against spending cuts aimed education and healthcare sector.


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