Spain says economy shrinking at 'significant' pace

AFP, Wednesday 26 Sep 2012

Bank of Spain says that euro-zone's fourth largest economy continued contraction in third quarter, augmenting expectations that output will drop by 1.5 per cent in 2012

Spain
Protesters gather close to Spain's Parliament during a demostration in Madrid (Photo: reuters)

Spain's recession is deepening with economic output sliding at a "significant pace" in the third quarter of this year, the Bank of Spain said Wednesday.

"Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels," it said in a monthly report.

The eurozone's fourth largest economy tumbled into recession in the last quarter of 2011, less than two years after emerging from the previous downturn, official data show.

In the second quarter of this year the economy posted a 0.4-per cent contraction -- after showing declines of 0.3 per cent in the previous two quarters -- and the unemployment rate hit 24.6 per cent.

Spain's government is expecting an economic decline of 1.5 per cent this year, and another 0.5 per cent in 2013, but even those grim figures are considered optimistic by many analysts.

The International Monetary Fund has predicted economic declines of 1.7 per cent in 2012 and 1.2 per cent in 2013.

The Bank of Spain report comes as the country suffers renewed financial market tensions.

On Tuesday, Spain's borrowing costs surged in a short-term debt auction Tuesday as the government resisted pressure to rapidly seek a full-blown sovereign bailout.

But borrowing costs, which had declined in previous weeks after the European Central Bank outlined plans to buy the bonds of stricken eurozone states, climbed sharply in the sale of three- and six-month bills.

Spain has cut a deal with the European Union for a rescue loan of up to 100 billion euros ($125 billion) for banks hobbled by bad loans extended before a 2008 property market crash.

But it has refused to be rushed into seeking a full-blown sovereign bailout until it knows the conditions.

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