Madrid - AFP
Recession concerns and banking trauma haunted Spain\'s struggling economy Thursday, with data showing that output shrank by 0.3 percent in the final quarter of last year. Stocks tumbled on concerns over Spain\'s troubled banking sector and the future of debt-stricken Greece, adding to the challenges facing the new conservative government which is fighting to stem huge unemployment. Figures from the INE statistics office showed that for 2011 as a whole, the eurozone\'s fourth largest economy expanded a meagre 0.7 percent, confirming initial estimates given on January 30. The fourth-quarter slump, in a country where unemployment is running at nearly 23 percent, reflected a continued slowdown in domestic demand which could not be offset by exports, the INE said. \"The short-term economic outlook remains very challenging, with the latest grim survey data suggesting the economy will contract again in the first quarter of 2012, implying a new recession,\" said IHS Global Insight analyst Raj Badiani. \"We expect the recession to linger throughout 2012 following by lacklustre recovery in 2013, implying the economy could contract for two successive years.\" The 0.3 percent fall in output compared with the third quarter was the same as reported for the eurozone on Wednesday but while the bloc managed overall 2011 growth of 1.5 percent, Spain\'s was a relatively feeble 0.7 percent. If the Spanish economy shrinks again in the three months to March it would be in recession, defined as two straight quarters of negative growth. The government last week said it expected another contraction in the first quarter which would be worse than the fourth. In the face of a looming recession, it has passed a major banking reform and loosened labour laws that it says will stimulate job creation. The labour reform has sparked protests by critics who say it threatens job security. Spain emerged only at the start of 2010 from an 18-month recession triggered by the global financial crisis and a property bubble collapse that destroyed millions of jobs and left behind huge bad loans and debts. Badiani noted that exports had helped drag Spain out of the previous recession, but exporters are now facing \"an uphill battle\" and domestic consumption was \"still dismal\". With no growth engine, \"the new centre-right government could be forced to fall back on less punishing budget deficit goals or condemn Spain to two years of painful economic contraction,\" he noted. The Madrid stock market slumped more than 3.0 percent on growing concerns over the latest bailout for debt-stricken Greece and after a warning by credit rating agency Moody\'s that European bank ratings could be cut. The Ibex-35 index fell to 8,477.60 points in early afternoon trading, below the symbolic 8,500 points level for the first time since January 18, but recovered slightly to close down 2.10 percent at 8,558.1 points. Banking shares were hardest hit, with some falling more than seven percent. The slide came after the Spanish stock market authority lifted a ban on short-selling -- when investors bet on a fall in stock prices -- making stocks vulnerable to the practice which can drive shares down. Moody\'s on Wednesday put 21 banks in Spain on review for a possible ratings downgrade, adding another blow to Spain\'s financial sector suffering from its exposure to the property bubble that burst during the 2008 financial crisis. Some analysts saw hope for Spain in signs of strengthening financial market confidence, however. In a sale of three- and seven-year bonds on Thursday, the Spanish treasury raised 4.074 billion euros, more than its target of three to four billion, with demand more than double the initial offer. It secured lower repayment rates compared with the last comparable sales. \"The front-loaded debt issuance programme reduces the vulnerability to any future market panic and in itself should help to retain market confidence,\" said analyst Christian Schulz of Berenberg bank.