Spain’s Budget and Economy Continue to Contract

By webadmin on 06:45 pm Jul 23, 2012
Category Archive

Spain’s recession worsened in the three months through June as the toughest budget cuts in the country’s democratic history pushed the economy into a third consecutive quarter of contraction, the Bank of Spain said.    

The euro area’s fourth-largest economy shrank 0.4 percent from the first quarter, when gross domestic product fell 0.3 percent, the central bank said in an estimate in its monthly bulletin released today in Madrid. GDP dropped 1 percent from a year ago, it said.    

“Domestic demand fell more sharply than in the prior quarter,” while exports showed a “moderate recovery,” the Bank of Spain said.    

Prime Minister Mariano Rajoy last week announced his fourth round of tax increases and spending cuts since Dec. 30 as he struggles to convince investors the nation won’t need a second bailout. Planned budget cuts through 2014 now amount to over 10 percent of annual gross domestic product.    

Domestic demand fell 1.2 percent in the second quarter, compared with 0.5 percent in the previous three months, the Bank of Spain said. As job losses continued, households ate into their savings and low disposable income reduced their ability to pay down debt, it said.    

The yield on Spain’s 10-year benchmark bond today surged 26 basis points to 7.57 percent, above the levels that pushed Greece, Ireland and Portugal out of debt markets and into European bailouts. The spread with similar German maturities widened to 6.42 percentage points.    

The decline of tax receipts pointed to the risk the government may miss its budget goals even as a 65-billion euro austerity package announced on July 11 should help it approach the new targets Spain agreed with the European Union, the Bank of Spain said.    

The reduction in labor costs isn’t enough to restore competitiveness even as net exports contributed more to the economy in the second quarter than in the first, the Bank of Spain said.