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16 February 2012

FT: Spain teeters on brink of recession


Spain is teetering on the brink of recession after final official data confirmed that the eurozone's fourth largest economy contracted for the first time in two years in the fourth quarter of 2011.

Spain’s GDP fell by 0.3 per cent in the fourth quarter compared with the preceding three months, setting the scene for what is widely expected to be a sharp recession this year. Spain will join Italy and Portugal, Belgium and Greece in suffering two consecutive quarters of contraction if, as expected, its economy shrinks in the first three months of this year.

The country is suffering the highest level of unemployment in the eurozone, which stands at about 23 per cent after the collapse of one of the most excessive real estate bubbles in Europe. Luis de Guindo, Spain’s finance minister, had previously warned that the country would fall back into recession at the start of this year, while the Bank of Spain has forecast a total contraction of 1.5 per cent of GDP for 2012.

Spain’s recently-installed conservative government is battling to slash a budget deficit standing at about 8 per cent of GDP to a target of 4.4 per cent in one year, a reduction that critics argue will need to be so severe in terms of austerity measures that it will strangle any nascent recovery.

Cristobal Montoro, Spain’s budget minister, has displayed apparent hesitance that the high bar set for deficit reduction could be achieved, but was swiftly contradicted by his party.

Full article (FT subscription required)



© Financial Times


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