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| Ordonez: ‘... the Spanish economy finds itself, again, in recession’ |
Spain’s battered economy tipped into recession in the first quarter of 2012, the Bank of Spain said yesterday, a slump that has driven fresh market fears over its sovereign debt outlook.
An outbreak of concerns over Spain’s debt in mid-2011 interrupted a gradual, year-long recovery, central bank governor Miguel Fernandez Ordonez said in a speech.
As a result, the economy contracted by 0.3% in the final quarter of last year, he said.
“This profile has continued in the first months of this year, so that the Spanish economy finds itself, again, in recession,” he said.
A recession is commonly defined as two consecutive quarters of declining output.
Spain only emerged at the start of 2010 from nearly two years of recession sparked by the global financial crisis and a property bubble implosion that destroyedmns of jobs and left huge debts in its wake.
A Bank of Spain report last month said economic activity appeared to be contracting in the first quarter of 2012 but it did not use the word “recession”.
Likewise, Finance Minister Luis de Guindos said in an interview in the daily El Mundo that the first three months of 2012 would be “bad, with negative quarterly growth” but also did not refer directly to recession.
Prime Minister Mariano Rajoy’s conservative government, in power since December, is fighting to calm renewed market fears that its deficit reduction targets will be impossible to meet during a recession.
Those concerns forced Spain’s Treasury to pay sharply higher borrowing rates at an auction of 12- and 18-month bonds yesterday, which raised €3.18bn ($4.2bn).
Spain posted a public deficit of 8.51% of gross domestic product in 2011, missing the 6% target by a wide margin, in part because of regional governments failing to mop up the red ink.
The government has promised to cut the deficit — the shortfall of revenue to spending — to 5.3% of GDP in 2012 and 3% of GDP in 2013.
In an effort to meet those goals, its 2012 budget brings in spending cuts and tax increases of €27bn ($35bn), in addition to an earlier round of €8.9bn in spending cuts and €6.3bn in higher taxes.
But the task is complicated by a weak economy and high unemployment, which cut tax revenues while increasing social welfare costs.
Spain’s economy has been hit by weak domestic demand and now the intensified sovereign debt crisis, which saps investor confidence and made it harder to raise fresh financing, the central bank chief said.
“The outlook for 2012 is unfavourable and continues to be subject to a high level of uncertainty,” he said.
The government assumes an economic contraction of 1.7% this year after 0.7% growth in 2011.
The weak outlook means there is little hope for those looking for work.
The jobless rate hit 22.85% at the end of 2011, the highest level among major industrialised nations, and the government predicts it will rise to 23.4% this year.
In response, the government has overhauled labour rules to make it cheaper to fire workers and easier to lower wages, measures it argues will eventually encourage job creation when the economy improves.