Spanish Recession Deepens

Spain’s recession worsened in the second quarter as the government’s austerity push to reduce the euro area’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. That’s in line with an estimate published July 30. Separately, Spain’s borrowing costs fell to the lowest in three months at an auction today after the nation’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 nation’s funding issues.

“We fear that things are likely to get worse before they get better,” said Martin van Vliet, an economist at ING Bank in Amsterdam, who expects Spain will seek additional financial aid as early as next month. “With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted toward a more protracted recession.”

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. That’s the biggest decline since at least 1997, when the ECB’s data series started.

Bloomberg

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