Spain is Back in Recession

The Spanish economy entered its second recession since 2009. According to the National Statistics Institute, the country’s economy shrank 0.3 percent in the first quarter of 2012, which is less than previously forecast, making this the second consecutive quarter of contraction. Compared to the previous year, the gross domestic product (GDP) fell 0.4 percent.

Spain’s government is struggling to reach its target of reducing the budget deficit by 3.2 percentage points of GDP this year as the economy shrinks and unemployment increases to almost 25 percent. The government forecasts an economic contraction of 1.7 percent in 2012 and an expansion of 0.2 percent in 2013, that will leave the unemployment rate at about 24 percent.

Concerns over the weakness of the economy and the budget deficit level have driven Spain’s borrowing cost up, raising fears that the country will need a bailout. In the meantime, foreign investors are losing confidence and reducing their Spanish debt exposure.

Non-resident holdings of Spanish bonds fell to 220 billion euros in March from 245 billion euros the previous month, data on the Treasury’s website showed today. At the same time, Spanish banks increased their holdings to 171 billion euros from 142 billion euros.

Some analysts expect that Spain’s recession will almost certainly deepen in the coming quarters, pushing unemployment to even more dramatic highs.

Source: Bloomberg

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.