Spain’s economy shrinks further

Wednesday, October 24, 2012    

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MADRID, Spain — SPAIN’S economy continued to shrink in the third quarter, contracting by 0.4 per cent compared with the previous three months, according to central bank estimates yesterday that will increase pressure on Prime Minister Mariano Rajoy to seek financial help from Europe.

This is the fifth quarter in a row that Spain’s economic output has contracted. The economy also shrank by 0.4 per cent in the second quarter and 0.3 per cent in the first quarter and is forecast to show a 1.5 per cent fall this year and 0.5 per cent in 2013.

Earlier this month, the International Monetary Fund forecast that Spain’s economy would contract 1.3 per cent next year, more than double the government’s prediction.

The central bank’s figure is an estimate. Official figures are due to be released by the National Statistics Institute on October 30.

The bank said consumer demand fell by 1. 2 per cent — although the decline eased a little in the third quarter due to increased spending ahead of a sales tax increase on September 1.

Spain is in its second recession in three years with near 25 per cent unemployment. The country is one of the focal points in Europe’s financial crisis: if Spain defaults on its debts or needs a full-blown bailout, the finances — and credibility— of the 17-country group that uses the euro could be stretched to breaking point.

In September the European Central Bank said it was prepared to buy unlimited amounts of bonds in countries struggling with their debts. This has helped the country by pushing its borrowing costs lower. But Rajoy has held off triggering the actual purchases.






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