Spain faces growing risk of return to recession: BBVA

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The possibility that Spain will fall back into recession at the end of the year is more and more likely as weak growth is made worse by a global economic slowdown, Spanish bank BBVA said on Tuesday.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a labour-intensive property bubble. It stabilised in 2010 but growth remains anaemic.

Economic growth ground to a halt in the third quarter after gains of 0.4 percent in the first and 0.2 percent in the second on the back of exports which made up for a slump in domestic demand.

BBVA's research department predicts negative growth in the fourth quarter "if the signs observed in October are maintained.

"The Spanish economy is stagnating and the probability of it entering into recession increases," it added.

"During the last three months, the uncertainty regarding the perspectives for the global economy have increased, which has had a negative effect on the expected recovery of the Spanish economy."

The probability that the economy will return to recession -- broadly defined as two consecutive quarters of negative growth -- has been raised by a growing number of financial institutions.

Goldman Sachs predicts the Spanish economy will shrink 0.2 percent during the fourth quarter and by another 0.2 percent in the first quarter of 2012, with French bank Natixis putting the contraction at 0.2 percent and 0.1 percent.

BBVA also warned that Spain risks missing its public deficit target for this year.

"It is very likely that, if additional measures are not announced, the public deficit will end the year clearly above the target of 6.0 percent of Gross Domestic Product," it said.

Spain has promised to reduce its annual public deficit from 9.3 percent of GDP last year to 6.0 percent this year, 4.4 percent in 2012 and 3.0 percent, the European Union ceiling, in 2013.

© 2011 AFP

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