A job-destroying recession kept a tight grip on Spain in the third quarter of 2012 when output shrank by an estimated 0.4 per cent, the Bank of Spain said on Tuesday.
The country’s economy continued to shrink, increasing pressure on Prime Minister Mariano Rajoy to seek help from Europe. This is the fifth quarter in a row that Spain’s economic output has shrunk. The country’s economy also contracted by 0.4 per cent in the second quarter and 0.3 per cent in the first quarter and is forecast to show a 1.5 per cent fall this year and 0.5 per cent in 2013.
The central bank figure is an estimate. Official figures are due to be released by the National Statistics Institute on Oct.30. If confirmed, the figures would mean that the Spanish recession, which has left one in four workers unemployed, is moving into a second year at a relentless pace.
The bank said consumer demand fell by 1.2 per cent although the decline eased a little in the third quarter due to increased spending ahead of a sales tax increase on Sept.1. Spain is in its second recession in three years with near 25 per cent unemployment.
The country is one of the focal points in Europe’s financial crisis if Spain defaults on its debts or needs a full-blown bailout, the finances and credibility of the 17-country group that uses the euro could be stretched to breaking point. In September the European Central Bank said it was prepared to buy unlimited amounts of bonds in countries struggling with their debts. This has helped the country by pushing its borrowing costs lower.
The eurozone’s fourth-largest economy, which had barely emerged from the last recession at the end of 2010, began gently shrinking in mid-2011 and has slumped in every quarter since by as much as 0.5 per cent. According to the Bank of Spain, available but as-yet incomplete data for the second quarter point to gross domestic product declining at a quarterly rate of 0.4 per cent, the same pace as in the previous three months.
“The Spanish economy continued on a path of contraction which began a year earlier,” the bank said in a monthly report. People were losing jobs at the same pace, too, the bank said. “It is estimated that employment contracted at a similar pace to the previous quarter at an annual rate of about 4.5 per cent,” the Bank of Spain said.
The economy might have fared even worse, however, but for a government announcement that it had decided to lift the sales tax from September 1, the bank said.
The impending sales-tax rise prodded many people to go out and buy durable consumer goods such as washing machines and televisions in July and August before the price went up. As a result, domestic demand was estimated to have dropped by 1.2 per cent in the second quarter after a sharper 1.4-per cent plunge in the previous three months, the bank said. But the end of the purchasing spree ahead of the sales-tax rise, plus a decline in public sector salaries, could mean weaker consumer spending in the final quarter of this year, it warned.
“The room to manoevre that families have to manage their restricted incomes and to ease spending patterns has been substantially reduced in the last quarters,” the Bank of Spain said. As people struggled to make ends meet, household savings rates fell to the lowest level since 2006 in the second quarter, the bank said.
The report likely made grim reading for Mariano Rajoy’s right-leaning government, which has forecast an economic contraction of just 0.5 per cent next year.
Bank of Spain governor Luis Maria Linde this month described that forecast as “certainly optimistic” in the light of private forecasts centred on a 1.5-per cent economic slump.
Madrid’s 2013 economic forecast, viewed with scepticism on the financial markets and by international institutions, serves as the basis for its 2013 budget promises. Spain missed last year’s public deficit target by a wide margin, ending 2011 with a shortfall equal to 9.4 per cent of economic output instead of the promised 6.0 per cent.
This year, it has promised to lower the overall deficit to 6.3 per cent of output, but already Madrid has been forced to admit that the cost of a banking sector rescue will push the gap to 7.4 per cent.