Luis de Guindos, economy minister in the new conservative Popular Party government led by Mariano Rajoy, conceded that he expected the economy to contract up to 0.3% in the final three months of 2011 and again in the first quarter of the new year. Technically, a recession is two consecutive quarters of negative growth.
Spain last pulled out of recession at the start of 2010 but is still trying to tackle the highest rate of joblessness in the eurozone of 21.5%.
Its new government is committed to curbing the budget deficit by €16.5bn (£14bn) in 2012 through sweeping cuts and is expected to try to clean up banks that have been battered by loans to property companies and exposure to troubled countries in the eurozone. “This quarter the Spanish economy will surely see a downturn and we will return to negative growth,” de Guindos told a news conference.
“Let nobody be fooled, the next two quarters are not going to be easy either in terms of growth or employment,” he was quoted as saying by the Associated Press.
Spain is trying to reassure markets that it can curb its deficit to avoid being punished by investors anxious about the future of the 17 nation European single currency. Just before the Christmas holiday, the yield on 10-year bonds – which reflects the real cost of borrowing for governments – increased two basis points to 5.41% before a 7 January deadline for employers and unions to come up with a labour reform agreement demanded by the government.
While markets will seize upon de Guindos’ remarks as signalling a new recession, the warning signs have been apparent for some time. After showing growth in the first half of 2011, by the third quarter the economy was registering zero growth amid fears of a break up of the eurozone and economists had begun to issue forecasts of negative growth for the remainder of the year.
Since being elected last month, Rajoy has been calling on Spaniards to work together to try to overcome the debt crisis and to tackle unemployment which is more than double the average in the EU. He forced out the socialist government of José Luis Rodríguez Zapatero who was criticised for being too slow to respond to the economic crisis that gripped the country in 2009.
The incoming government is scheduled to unveil its economic measures on Friday.
After a rush by eurozone banks to take up cheap European Central Bank loans last week highlighted the precarious state of the region’s financial system, the head of German industrial conglomerate Siemens joined the chorus of voices warning of a credit crunch.
Siemens chief executive Peter Loescher told German newspaper Der Tagesspiegel: “One danger is evident, namely that of a credit crunch. The European Central Bank, however, has just shown again that it is very vigilant in that respect and also able to act.”
The ECB’s first ever offer of three-year loans was snapped up to the tune of half a trillion euros but some market analysts said it would do little to solve the eurozone’s fundamental debt problems.
Loescher argued, however, that the economy was in better state than many believed.
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