Spain’s recession worsened in the second quarter as the governmentâ€™s austerity push to reduce the euro areaâ€™s third-biggest budget deficit and a slump in consumer spending offset growth in exports.
Gross domestic product fell 0.4 percent from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said today. Thatâ€™s in line with an estimate published July 30. Separately, Spainâ€™s borrowing costs fell to the lowest in three months at an auction today after the nationâ€™s bonds rallied this month on optimism the European Central Bank will agree on a plan to help peripheral nations.
Prime Minister Mariano Rajoy last month gave up on his forecast for a return to growth in 2013 as he unveiled budget cuts that will expand austerity measures to a total of 15 percent of annual GDP by 2014. He is due to host European Union President Herman Van Rompuy today for the first in a series of meetings aimed at solving the nationâ€™s funding issues.
â€œWe fear that things are likely to get worse before they get better,â€ said Martin van Vliet, an economist at ING Bank in Amsterdam, who expects Spain will seek additional financial aid as early as next month. â€œWith much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted toward a more protracted recession.â€
Separate data today from the ECB showed that private-sector deposits at Spanish banks fell by a record in July, dropping 74.2 billion euros ($93 billion), or 4.7 percent, to 1.51 trillion euros. Thatâ€™s the biggest decline since at least 1997, when the ECBâ€™s data series started.
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