Bank of Spain confirms country is in technical recession as economy shrinks in first quarter

MADRID – Spain slipped back into recession as the country’s economy contracted for the second quarter in a row, the central bank said Monday.

A Bank of Spain monthly report recorded that economic output shrank 0.4 per cent in the first quarter of the year, following a 0.3 per cent decline in the last quarter of 2011. A technical recession is commonly defined as two consecutive quarters of economic contraction.

The news of recession comes as no surprise, however — the new conservative government has previously warned the economy is shrinking and forecasts it will contract 1.7 per cent this year.

Prime Minister Mariano Rajoy has already pushed through a series of labour market and financial sector reforms, taken drastic deficit-reduction measures, and warned Spaniards to that things will get worse before they better. The jobless rate is nearly 23 per cent and expected to rise.

The Bank of Spain’s figure is a preliminary estimate. The official GDP figure from the National Statistics Institute comes out April 30.

In financial markets, the country remained under pressure on Monday — the yield, or interest rate, of 10-year Spanish bonds rose 4 basis points to 5.97 per cent. The Ibex-35 stock index slumped 2.8 per cent.

The central bank said domestic demand dropped again, but foreign demand for Spanish goods rose, but at a slower pace than usual. For the first time in seven quarters, GDP compared to the same figure a year ago fell — by 0.5 per cent.

Spain is struggling after the collapse in 2008 of a property bubble that had fueled nearly a decade of solid and sometimes robust growth.

It was only in 2010 that it emerged from nearly two years of recession, and now it is back in another one.

Investors are concerned that the government might not be able to resurrect the economy and generate growth and jobs while drawing money out with austerity measures such as health care and education spending cuts and increases in income, property and corporate taxes.

These worries are pushing up Spanish borrowing costs at debt auctions and intensifying fears this will follow Greece, Ireland and Portugal and seek a bailout.