According to recent reports, for the first time in 2 years, Spain’s economy shrank in the fourth quarter. Numerous economist fear that it could be the start of an extended slump as Madrid applies ruthless austerity measures to reduce a huge budget deficit. Furthermore, final official data on Thursday showed that Spain’s GDP declined by approximately 0.3 percent in the fourth quarter on a quarterly basis. On Thursday, Spain will issue a bond sale including 1 for 7 years. Overall in the fourth quarter, the economy grew by nearly 0.3 percent on an annual basis.
This was in line with Reuters forecasts and compared to 0.8 percent in the third quarter. Nick Matthews, RBS economist said that despite the fact that some nations in the single currency zone maybe able to avoid recession, Spain won’t. He added that for Spain, avoiding recession will be a very difficult task. On Wednesday, official data revealed that economic output in the single currency zone dipped by nearly 0.3 percent in the fourth quarter from the third quarter as sovereign debt crisis flattened a recovery. The data on Wednesday showed that the Italian economy together by Portugal, Greece and Belgium in formal recession having already shrunk in the third quarter of last year. For January, purchasing data from Markit revealed a minor enhancement for the Spanish manufacturing and service industries. Since Spain entered into the single currency zone 12 years ago, it has been growing at an above average rate. However, the growth was mostly due to a boom in the housing sector which was fueled by cheap loans. However, since the 2007 crash, Spain has been struggling. Growth in the fourth quarter was due to an increase in the demand for Spanish exports.
For the moment, Spain’s government is struggling to cut a budget deficit it has predicted at 8 percent of Gross Domestic Product in the last year to a target of 4.4 percent in 2012. The IMF believes that in 2012 the GDP will contract by nearly 1.7 percent. On an annual basis, the economy expanded by almost 0.3 percent in the fourth quarter.
