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Spain's economy falls back into recession in the first quarter of 2012

Press TV, Mon Apr 30, 2012 10:23AM GMT

Official figures show that the Spanish economy slumped into recession in the first quarter of 2012, as the European state’s financial crisis continues to intensify.

Spain’s National Statistics Institute said on Monday that the country’s gross domestic product (GDP) shrank 0.3 after a similar decline in the last three months of 2011, AFP reported.

This comes while earlier the day, the New York-based ratings agency Standard & Poor’s downgraded the ratings of nine top Spanish banks.

The banks include Santander and its subsidiary Banesto, BBVA, Banco Sabadell, Ibercaja, Kutxabank, Banca Civica, Bankinter and the local unit of Barclays.

The development came a day after rallies were held across the country to protest against health and education budget cuts.

Also on Friday, Spain’s long-term sovereign credit rating was lowered from A to BBB+, while its short-term rating was cut from A-2 to A-1.

Experts say the downgrade could further increase Spain’s borrowing costs as investors will most likely demand higher interest rates to compensate for the greater risk caused by the downgrade.

The double-dip recession will make it much harder for Spain, the fourth largest eurozone economy, to meet its deficit targets.

Spain has announced spending cuts of more than 11 billion dollars as well as tax increases to reduce the country's deficit to avoid seeking a financial bailout like Greece, Ireland and Portugal.

The worsening debt crisis has forced EU governments to adopt harsh austerity measures and tough economic reforms, triggering incidents of social unrest and massive protests in many European countries.

MR/HJL