Spain lurches into recession as borrowings costs rise
Spain officially slipped in to recession in the first quarter, final figures confirmed, leaving the country threatened with a prolonged slump as the turmoil-wracked.
In the first quarter, the economy shrank 0.3 per cent in the compared with the last quarter of 2011, and was down 0.4 per cent year on year, the National Statistics Institute said on Thursday, its sharpest annual fall since the first quarter of 2010.
Meanwhile Spain’s medium-term borrowing costs rose sharply to around five percent in an auction of three- and four- year bonds, reflecting concerns over the Spanish banking system and economy and the political crisis in Greece.
Yields on the three bonds issued were in line with those on the secondary markets shortly before the sale. The Treasury auctioned 2.5 billion euros (£2bn) of two bonds maturing in 2015 and one bond maturing in 2016.
“The recession is proceeding at a gradual pace but taking in to account the latest business survey it seems that the contraction in economic activity is going to stretch well in the coming quarters,” said economist at Unicredit Tullia Bucco.
Spain’s manufacturing sector shrunk at the fastest pace in nearly three years in April, while the service industry contracted for the 10th straight month, according to Markit’s purchasing manager’s indices.
The expansion of export sector, the only area of Spain’s economy to have grown in the last two quarters, slowed in the first quarter as the country’s main trading partners in Europe saw their own economies contract.
Madrid is fighting to persuade investors, who have been selling its debt in droves, that it can control its public finances with wide-sweeping spending cuts, but fears remain that rebuilding the battered banking sector will cost dearly.
The premium investors pay to buy Spanish over German debt rose to its highest level since the euros introduction this week, at over 500 basis points, on concerns on the country’s banks and doubts over Greece’s future.
Economists said the Spanish growth figures were in line with expectations, but noted that they were revising forecasts as uncertainties grew in the region.