Spain's GDP contracts over Q4, recession looms

The National Institute of Statistics (INE) has released data showing how GDP shrank by 0.3% during Q4 of 2012 and with the Bank of Spain predicting a 1.5% contraction in 2012, it is looking increasingly likely that the country will slide back into recession

The report matches a preliminary forecast released by the Bank of Spain last week.

With the highest unemployment level in the EU and credit shrinking at record levels, Spain’s economy will probably slump for the next two years, contracting 1.7% in 2012 and another 0.3% in 2013, according to the IMF. That will make it impossible to reach the deficit targets of 4.4% of GDP this year and 3% in 2013, the IMF said on Jan. 24, forecasting a shortfall of 6.8% this year and 6.3% in 2013.

At the end of 2011 the new PP government announced how they had inherited a much bigger shortfall than the previous administration had projected, ammounting to 8%, instead of the 6% target set with the EU. The goal for 2012 was made when the previous government expected the economy to grow by 2.3% in 2012.

The information released today has prompted Moody's Investor Service to mark their outlook for Spain in 2012 as being “credit negative” for lenders.

“The main risk for banks will be that stronger institutions may have to share the burden of recapitalizing the system by merging with weaker peers without receiving sufficient government compensation,” Moody’s said in its Weekly Credit Outlook.