Spain, Britain stuck in recession as US rebound

30th October 2009, Comments 0 comments

Spain's economy shrank further in the third quarter new data revealed Thursday, making it the only large European economy along with Britain to remain in recession as the US also returns to growth.

Madrid--The economy shrank 0.4 percent between July and September from the previous three months, its sixth straight quarterly decline, and by 4.1 percent from a year earlier, the central bank said in an initial estimate.

"The indicators relative to the third quarter confirm the tendency towards a slowdown in the contraction of (economic) activity," the central bank reported.

The national statistics institute will publish its preliminary third-quarter GDP figures on November 12.

Spain's economy, the fifth-largest in Europe, shrank by 1.1 percent in the second quarter from the previous three months and by 4.1 percent from a year earlier.

But while the pace of contraction in the third quarter was the slowest since Spain entered into its first recession in 15 years at the end of 2008, it is far below the 0.5 percent growth London-based Capital Economics estimates the entire eurozone posted during the period.

Eurozone heavyweights France and Germany both posted surprise GDP growth in the second quarter of 2009, technically bringing an end to their recessions.

The United States announced Thursday that its economy grew at a seasonally adjusted 3.5 percent in third quarter from the previous three months, its strongest growth in two years as government stimulus boosted consumer spending.

Spain's economic performance instead mirrors that of Britain, which unexpectedly slumped 0.4 percent in the third quarter.

Capital Economics expects the Spanish economy will continue to trail its European peers.

It predicts Spanish GDP will contract by around 1.0 percent next year, after shrinking 4.0 percent this year, while the eurozone will expand by around 1.5 percent in 2010.

"Looking ahead, we expect Spain’s considerable economic imbalances, problems in the banking sector and the growing threat of deflation to ensure that a sustained recovery remains a long way off," Capital Economics' European economist Ben May said in a statement.

The Spanish economy has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fueled domestic demand and a property boom boosted by easy access to loans.

Socialist Prime Minister Jose Luis Rodriguez Zapatero's government approved an additional 5.0 billion euros (7.5 billion dollars) on Friday for public works programmes in a new bid to stimulate the recession-hit economy.

The fund would be in addition to EUR 8.0 billion (USD 12 billion) allocated in November 2008 for infrastructure projects and which led to the creation of 421,000 jobs since April but which is now winding down, the government said.

That stimulus package has not prevented the unemployment rate from rising to nearly 18 percent, twice the eurozone average, which has led to a drop in consumption which in turn has caused retailers to slash prices, raising the threat of deflation.

Spain's annual inflation fell 0.6 percent on the year in October, its eight straight month of decline, statistics institute INE said Thursday.

Earlier this month, the head of the Bank of Spain, Miguel Angel Fernandez Ordonez, warned that the country's growth model was "unsustainable" as it was excessively based on construction.

He also called for reforms in the labour market, without which he warned Spain faced a long period of high unemployment.

AFP/ Expatica/ Daniel Silva


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