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Madrid - Spain officially slipped in to recession in the
first quarter, final figures confirmed on Thursday, leaving the country
threatened with a prolonged slump as the turmoil-wracked eurozone struggles to
balance austerity with growth.
In the first quarter, the economy shrank 0.3% in the
compared with the last quarter of 2011, and was down 0.4% year-on-year, the
National Statistics Institute said on Thursday, its sharpest annual fall since
the first quarter of 2010.
"The recession is proceeding at a gradual pace but
taking in to account the latest business survey it seems that the contraction
in economic activity is going to stretch well in the coming quarters,"
said economist at Unicredit Tullia Bucco.
Spain's manufacturing sector shraunk at the fastest pace in
nearly three years in April, while the service industry contracted for the 10th
straight month, according to Markit’s purchasing managers' indices (PMIs).
The expansion of export sector, the only area of Spain’s
economy to have grown in the last two quarters, slowed in the first quarter as
the country’s main trading partners in Europe saw their own economies contract.
Madrid is fighting to persuade investors, who have been
selling its debt in droves, that it can control its public finances with
wide-sweeping spending cuts, but fears remain that rebuilding the battered
banking sector will cost dearly.
The premium investors pay to buy Spanish over German debt
rose to its highest level since the euro's introduction this week, at over 500
basis points, on concerns on the country’s banks and doubts over Greece's
future.
The Treasury faces its latest test in international debt
markets later on Thursday when it auctions three bonds to raise up to €2.5bn.
Economists said the Spanish growth figures were in line with
expectations, but noted that they were revising forecasts as uncertainties grew
in the region.
"The depth of the recession really depends on upcoming
events, such as whether Spain will be forced to ask for aid to refinance its
banks and Greece.
"We're revising our growth forecasts for Spain right now, but the situation is very fragile at the moment," one economist, who asked not to be named, said.
