Spain economy shrinks 0.3pc in Q4: official data

MADRID: The struggling Spanish economy shrank 0.3 percent in the fourth quarter of 2011, stoking concerns that a weak first quarter this year will see it back in recession, official data showed Thursday.

For 2011 as a whole, the economy expanded a meagre 0.7 percent, according to the figures which confirm initial estimates given January 30.

The slump, in a country where unemployment runs at nearly 23 percent, reflected a continued slowdown in domestic demand which could not be offset by exports, the INE statistics office said.

The 0.3 percent fall in output compared with the third quarter was the same as reported for the wider eurozone on Wednesday but the bloc managed overall 2011 growth of 1.5 percent, compared with Spain's 0.7 percent.

If the Spanish economy shrinks again in the three months to March, it would be in recession, as defined by two consecutive quarters of negative figures.

The government last week said it expected another contraction in the first quarter which would be worse than the fourth.

Spain emerged only at the start of 2010 from an 18-month recession triggered by the global financial crisis and a property bubble collapse that destroyed millions of jobs and left behind huge bad loans and debts.

IHS Global Insight analyst Raj Badiani noted that exports had helped drag Spain out the previous recession, but exporters are now facing "an uphill battle to maintain their solid performance" particularly with many EU states on an austerity drive.

Domestic consumption was meanwhile "still dismal" as consumers are holding back amid the economic slowdown.

With no growth engine to turn to, "the new centre-right government could be forced to fall back on less punishing budget deficit goals or condemn Spain to two years of painful economic contraction.

"Critically, this will depend on the markets' willingness to buy Spanish sovereign debt despite the prospect of significant fiscal slippage," he noted.

"However, international investors could accept that the biggest risk to Spain is now from its devastated labour market, while the public debt ratio remains low enough to absorb missed budget deficit goals," said Badiani.