Economy on way back to recession, says BBVA report

The latest quarterly report produced by the research department of BBVA bank suggests even worse times lie ahead for Spain's economy. "The risk of entering into recession has risen," the head of the Developed Economies department, Rafael Domenech, said at Tuesday's report presentation.

A return to recession ? seen as a remote possibility just months ago ? has surfaced in the predictions of several recent private studies. The new BBVA report warns GDP will fall by 0.1 percent between October and December compared with the same period in 2010, less than two years after the Spanish economy emerged from the recession caused by the 2008 financial crisis.The widely accepted definition of recession is two consecutive quarters of negative growth. BBVA doesn't believe this has happened yet, albeit by a matter of hundredths of a percentage point.

As the Bank of Spain did last week, BBVA also believes the Spanish economy stalled in the third quarter. That will be clarified when the official estimate by the National Statistics Institute is released on Friday. But beyond the debate over exact figures, the report argues that even in the best-case scenario, a "slow and weak recovery" is on its way, with just 1 percent growth forecast for 2012, a figure that has already been reduced by 0.3 percent.

The rise in financial tensions, the growth slowdown in Europe and the difficulty in accessing credit are all factors that have contributed to a gloomier outlook since the last BBVA report was released.

The document also predicts unemployment in Spain is likely to rise further in the fourth quarter of the year (to 22 percent of the active population, compared with 21.5 percent in summer). It also warns the public deficit will exceed 6.5 percent of GDP (0.5 percent more than the target agreed with Brussels).

"Never have events abroad had such a decisive effect on the Spanish economy," said BBVA's chief economist Jorge Sicilia in reference to the ongoing crises in Italy and Greece. If these tensions are not resolved, he warned, all euro-zone countries will be plunged headlong into recession.