Spain economy falls back into recession
MADRID - Agence France-Presse
People walk past graffiti reading ‘Death to the state’ at the entrance of a vacated bank branch in Madrid. S&P had downgraded the ratings of the top Spanish banks.REUTERS photoSpain has back tipped into recession, an official estimate confirmed yesterday, even as the government pressed ahead with unpopular spending cuts to rein in burgeoning debt.
Spain’s economy shrank by 0.3 percent for the second straight quarter in the first three months of 2012, according to preliminary data by the National Statistics Institute.
The return to recession, blamed on weak domestic demand only partially compensated by exports, comes barely two years after Spain emerged from the last downturn at the start of 2010. It was no surprise coming days after an even more pessimistic diagnosis by the Bank of Spain, which predicted the economy would shrink by 0.4 percent in the first quarter.
But it was the first official estimate to confirm a recession -- two quarters of shrinking economic output.
Despite the recession and a towering unemployment rate, which hit 24.4 percent in the first quarter, the government has vowed to meet its ambitious deficit-cutting targets so as to regain market confidence. Tens of thousands of people took the streets on Sunday to protest against the conservative Popular Party’s spending cuts, however, especially in health care and education.
Across the eurozone, meanwhile, the emphasis on austerity remedies during a recession is increasingly come under question.
Investors’ doubts about Spain’s ability to meet its deficit goals are amplified by the plight of Spain’s banks, many bogged down in bad loans extended during the property boom. Markets fear the state may have to step in to help some banks’ fragile balance sheets, placing its own deficit under further stress.
Standard & Poor’s downgraded yesterday the ratings of the top Spanish banks, including Santander and BBVA, after slashing the country’s credit standing because of the deficit and the recession.
The banks affected include Santander and its subsidiary Banesto, BBVA, Banco Sabadell, Ibercaja, Kutxabank, Banca Civica, Bankinter and the local unit of Barclays.
S&P on April 27 slashed Spain’s sovereign rating by two notches to ‘BBB+’ and said yesterday the same considerations “could have potentially negative implications for our view of the economic risk and industry risk affecting the Spanish banking industry.”
Just as S&P made the announcement, official figures showed the Spanish economy slumped into recession in the first quarter, shrinking 0.3 percent after a similar contraction in the last three months of 2011.
Bourses keep losing
Growing concerns over Spain’s financial condition increasingly weighed on markets yesterday, after investors had initially bid up stocks on hopes that the Federal Reserve would provide more stimulus to the U.S. economy. As traders prepared for a holiday today across much of continental Europe, stocks and the euro dropped. After early gains, Britain’s FTSE was down 0.5 percent at 5,749.17 and France’s CAC-40 fell 0.7 percent to 3,242.96. Germany’s DAX was flat at 6,803.80. The cautious mood in Europe’s stock markets was evident in the performance of the euro too, which fell to $1.3213 from $1.3259 late Friday in New York. Wall Street was also headed for a subdued open, with Dow futures down a point at 13,163 and S&P 500 futures 0.2 percent lower at 1,395.80.