Spanish Economy expected to contract into 2012

 

The new Minister for the Economy, Luis de Guindos, has said how the Spanish Economy has suffered a relapse and will likely contract until the Partido Popular's policies can take effect after being voted in to replace the PSOE party in November's general election.

"The Spanish economy has had a relapse and we are returning to a negative growth rate," de Guindos told members of the press yesterday.

Prime minister Mariano Rajoy, who named his government last week after his party's landslide election victory on November 20th, has pledged to tackle the budget deficit as a priority and has taken the unusual step of not appointing a Deputy to de Guindos, planning instead to take an active role on matters of the economy himself.

The Minister has been tasked with reforming the to restore the flow of credit and tackling the country's 23% rate of unemployment.

The Economy shrank in Q4 of 20122 and would remain weak in Q1 of 2012, he said yesterday.

Economists say the country's GDP was flat in Q3 and is likely to have contracted over Q4, hit by the euro zone debt crisis, slowing exports and sliding domestic demand, economists say.

"It is certain that the Spanish economy shrank in this quarter . . . which will determine how we begin next year, relatively decelerated," Mr de Guindos said. "The next two quarters – we shouldn't fool ourselves – won't be easy from the point of the view of the economy or employment."

The Minister said he expected the economy to shrink during Q1 of 2012 after contracting by 0.2% to 0.3% in Q4 of 2011. Two consecutive quarters of economic contraction is defined as a recession.

Spain emerged from an 18 month recession in the first quarter of 2010 but has struggled to grow ever since, weighed down by a collapsed property sector, massive unemployment, sliding domestic demand and weakening exports.

The new administration intends to announce emergency economic measures later this week to show it's committment to bringing public spending and the deficit under comntrol.