Spain's economy faces new downturn this year: study

9th August 2010, Comments 0 comments

The Spanish economy could contract by up to 0.6 percent this year as the government's tough austerity measures begin to bite, a study by the BBVA bank said on Monday.

"The Spanish economy continues to recover, albeit at a slow pace, but may yet be affected by ongoing uncertainties," it said.

Spain entered its worst recession in decades during the second half of 2008 as the global financial meltdown compounded a crisis in the once-booming property market.

It emerged during the first quarter of thus year with tepid growth of 0.1 percent.

The Bank of Spain on Friday forecast growth of 0.2 percent in the second quarter, while official figures from the National Statistics Institute are to be released on Friday.

The central bank, along with the International Monetary Fund, predicts the economy will shrink by 0.4 percent in 2010, while the government puts the figure at 0.3 percent.

But BBVA Research has a more pessimistic forecast, seeing a contraction of 0.6 percent this year, ahead of 0.7 percent growth in 2011.

"Given the weakness of the recovery in the first half of the year, we expect the Spanish economy to experience additional quarters of negative growth during the following quarters, possibly in the third quarter, although lower than those registered in 2008 and 2009," BBVA said.

"The factors behind this temporary correction setback in the economic uptrend derive mainly from the contractive effects of fiscal consolidation programmes being pushed through in Spain and Europe, and from the increased uncertainty on the international financial markets."

The government this year introduced tough austerity measures to rein in the public deficit from a massive 11.2 percent of gross domestic product in 2009 to six percent in 2011 and three percent -- the EU limit -- by 2013.

The cutbacks include a freeze on pensions and a five-percent pay cut for civil servants.

The government has also adopted an overhaul of the labour market that will make it easier and cheaper for employers to dismiss workers in an effort to fight an unemployment rate that has hit 20 percent, the highest in the eurozone.

© 2010 AFP

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