Monday, December 26, 2011

Luis de Guindos: Spain's economy will shrink in the last Quarter

MADRID, Spain — Spain's economy will shrink in the last quarter and faces a bleak outlook for the coming months, its new economy minister warned Monday, heightening fears of a fresh recession.

Luis de Guindos dampened already gloomy expectations for the economy as the new conservative government got to work on its programme of tough spending cuts.

"This quarter the Spanish economy will surely see a downturn and we will return to negative growth," he told reporters.

"Make no mistake, the next two months are not going to be easy, neither from a growth nor a jobs point of view," he said at a ceremony for his top ministry staff taking office.

The fourth-quarter outlook "is logically going to determine the (economic) profile we will enter in the coming year, which is going to be a relatively slowed-down profile."

Media quoted him later telling reporters that gross domestic product would contract by 0.2 to 0.3 percent in the current quarter. Spain's official growth figure for the third quarter was zero.

Media seized on De Guindos' words Monday as a sign that Spain will tip back into recession in the coming months. Both leading dailies El Pais and El Mundo interpreted his words as signalling a recession at the start of 2012.

Various economists have forecast negative growth in the current quarter and the first three months of 2012. A recession is commonly defined as two quarters of contraction in a row.

Analyst Daniel Pingarron of investment IG Markets said many European countries are "approaching negative GDP growth in this fourth quarter and the first quarter of next year, to improve slightly in the second half."

"All the forecasts point to this as the most likely scenario" for Spain, he told AFP after De Guindos' remarks.

Spain only emerged at the start of 2010 from an 18-month recession, triggered by the global financial crisis and a property bubble collapse, which destroyed millions of jobs and left banks with mountains of bad loans.

The collapse forced a major restructuring of the financial sector and tough spending cuts which the new government has vowed to deepen in order to create jobs and reassure the financial markets that lend to Spain.

The new right-leaning government of Prime Minister Mariano Rajoy following November elections has set a tight timetable for reforms to fix the slumping economy and reduce the public deficit.

Its top priority is to cut its unemployment rate, which is the highest in the industrial world at 21.5 percent.

Rajoy has said he will slash Spain's deficit by 16.5 billion ($21.7 billion) in 2012 through sweeping cuts, with only pensions escaping the knife, as well as cleaning up banks and reforming the labour market.


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