Spain back in recession as its austerity bites
THE SPANISH economy shrank again in the first quarter of this year, according to official estimates published yesterday, making it the eighth Eurozone member to fall into recession.
Meanwhile ratings agency Standard and Poor’s downgraded 11 Spanish banks, following its downgrade of the state last week from A to BBB+.
GDP fell 0.3 per cent in the first quarter, repeating the decline seen in the final quarter of 2011 and taking the country into its second recession in just over two years.
“This behaviour was due to the negative contribution by domestic demand, partly compensated by the positive contribution of foreign demand,” said statistics agency INE.
The economy is now 0.4 per cent smaller than it was in the first three months of 2011, and the government forecasts it will contract by a total of 1.7 per cent this year, before returning to growth of 0.2 per cent in 2013.
Economists believe the country’s housing boom and bust will continue to drag down GDP, as will the fiscal consolidation programme which led to further protests over the weekend.
“The recession will almost certainly deepen in the coming quarters, pushing unemployment to even more dramatic highs,” said ING analyst Martin van Vliet.
Standard and Poor’s also fears the banking system is weak and lacking in support, downgrading the ratings of 11 banks including Santander yesterday and putting another four on negative ratings watch as the government is less able to bail them out.
The government told banks to keep an extra €54bn (£44bn) to cover bad loans, and is thought to be mulling the establishment of a “bad bank” to take toxic loans off banks’ hands.