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Austerity Spain back in recession

posted 30 Apr 2012, 08:42 by Mpelembe   [ updated 30 Apr 2012, 08:43 ]

Spending cuts and unemployment leave little hope of returning to growth as Spain falls into recession again and many of the country's banks are downgraded by ratings agency, S&P

SPAIN-RECESSION - As if steep government spending cuts and record unemployment wasn't enough for Spain.

What the country didn't need to hear now is that it's dipped back into recession.

But after a weekend of protests across the country, new figures from the National Statistics Institute show GDP shrank 0.3 percent in the first quarter and was 0.4 percent down on this time last year.

The ratings agency, Standard and Poor's has also downgraded 11 of Spain's banks, including Santander and BBVA.

Some analysts say the spectre of a 'bailout' is looming, although it may not be on the scale of Greece and Portugal or Ireland if there's a programme put in place for the bank debt that built up in a massive property bubble.

Tobias Blattner is a Senior European Economist at Daiwa Capital Markets.

Tobias Blattner, Senior European Economist, Daiwa Capital Markets, saying:

"The pressure on the Spanish banks is likely to remain for as long as the markets are not sure about how much further house prices will have to fall. And this is a policy approach that has been very different in Spain than in, for example, Ireland."

All this was pushed into the fore when Spain's finance minister met with her German counterpart in the Spanish city of Santiago.

The conservative government, which took power from the Socialists in December, has introduced a labour reform and a banking sector reform which forces the banks to raise over 52 billion euros in capital this year.

In the March budget, the government said it plans to save 40 billion euros this year to try and meet its deficit target of 5.3 percent of GDP.

It predicts the country will return to growth in 2013, even though many economists say there's still a long way for property prices to fall.

Joanne Nicholson, Reuters