Spain’s economy shrinks, raising recession fears


Spain’s struggling economy has shrunk for the first time in two years, stoking fears that the country may be heading for a recession as its government implements tough austerity measures aimed at tackling a massive budget deficit.

Official data published Thursday showed that the country’s economy contracted 0.3 percent in the fourth quarter of 2011 after stagnating in the third quarter, the Agence France Presse reported.

Household spending dropped by 1.1 percent from the previous quarter, while spending by public bodies fell by 3.6 percent, according to the BBC.

The slump reflected a continued drop in domestic demand that exports could not offset, the INE statistics office said. For 2011 as a whole, the country’s economy expanded a paltry 0.7 percent.

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Spain grew at an above-average rate after entering the euro zone currency bloc 12 years ago, but its boom was largely due to housing expansion fuelled by cheap loans, which left the country particularly vulnerable to the effects of the global economic downturn, according to Reuters.

Unemployment in Spain now runs at nearly 23 percent, the highest jobless rate in the EU. The new government of Prime Minister Mariano Rajoy is desperately trying to make savings of around $60 billion to reduce a budget deficit estimated at 8 percent of GDP in 2011.

On Wednesday figures released by Eurostat, the EU’s statistics agency, showed that the 17-member euro zone economy had shrunk by 0.3 percent in the final three months of 2011, the first contraction since the second quarter of 2009, raising fears that the bloc may fall into a mild recession.

Italy and the Netherlands – two of the euro zone’s biggest economies – both fell into recession, while Germany experienced its first negative quarter since 2009, with GDP dropping 0.2 percent due to a slowdown in exports.

More from GlobalPost: Euro zone economy shrinks, raising recession fears

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