Spain’s central bank, Banco de España, has issued its quarterly report on the Spanish economy, indicating that for the first time in eight quarters the country’s economy has contracted. In the fourth quarter of 2011, Spain’s economy grew by a slight 0.3%. In the first quarter, GDP fell by -0.5%.
From the report:
[T]he Spanish economy has begun 2012 in a renewed recessionary situation. The pattern of contraction of economic activity is marked, on the expenditure side, by very muted national demand, the impact of which on output is only softened by the greater relative resilience of the external sector. … Developments in the Spanish economy over the coming quarters will be subject to uncertainty and to downside risks associated with the possible ups and downs of the sovereign debt crisis. The priority should therefore be to dispel the doubts over the Spanish economy’s adjustment capacity by concluding the clean-up, restructuring and recapitalisation of the banking system, and by strict compliance with the budgetary targets for 2012.
Today’s fall of -0.5% puts the country firmly on the path to returning to an official recession at the end of this quarter — the dreaded ‘double-dip’.
The bank appears to believe that by suffering through even greater austerity in the coming year, Spain will re-ignite confidence in the country’s economy. There is little reason to believe that given the experiences of Ireland and Greece. But that’s their story and they’re sticking to it.