Spanish economy sparks recession fears

Spain has been added to Europe’s growing list of shrinking economies after a damaging final quarter of 2011 sparked fresh fears of a recession.

Spain has been added to Europe’s growing list of shrinking economies after a damaging final quarter of 2011 sparked fresh fears of a recession.

The nation’s GDP had been steadily rising since a sharp decline in 2009 and 2010, but has entered negative figures once again after hitting and remaining at zero in the penultimate quarter of 2011. The GDP shrunk by 0.3%, which doesn’t seem too drastic compared to a record drop of -1.6% in 2009, but comes as a blow after a relatively stable 2011.

Spain has the highest jobless rate in the EU, with almost one in four people out of work.  400,000 people lost their jobs between the third and final quarter of 2011, pushing total unemployment numbers up to 5.3 million.

The downbeat fourth-quarter economy figures come even before the impact of new austerity measures unveiled last month by new Spanish Prime Minister Mariano Rajoy.  These include budget cuts (€8.9bn) and eclipsing a tax increase (€6.3bn) by over 2.5 Billion Euros.

RBS economist Nick Matthews said: “Some countries in the eurozone may just avoid a recession, but that may be more difficult for Spain.

Given the need for fiscal consolidation in the country and the pressure that puts on domestic demand, it’s going to be very difficult for Spain to avoid recession.”

The Bank of Spain predicts an overall contraction of 1.5% by the end of 2012, and the International Monetary Fund estimates that the country will stay in recession until the end of 2013.

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