More evidence emerges of renewed contraction in Spanish economy

Information made available on Monday added growing credence to forecasts that the Spanish economy is set to contract in the last quarter of the year due to the ongoing turmoil in the euro-zone sovereign debt market and slowing activity worldwide.

Industrial output on October fell to its level last seen in 2009 when Spain was still locked in its worst recession in living memory, while the service sector in November suffered its sharpest decline in over two-and-a-half years.

With Prime Minister-elect Mariano Rajoy expected to announce further measures to ensure Spain fulfills its deficit-reduction obligations, the downturn in activity could also extend well into next year.

The National Statistics Institute (INE) said Monday that after correcting for differences in the number of working days, its industrial production index declined 4.2 percent in October to its lowest level in 19 months. Output shrank across the board, with the biggest falls registered by consumer durables, which contracted 13.6 percent. Production in the first 10 months of the year contracted 0.7 percent.

"Without doubt, the figure points to a deterioration in the tone of Spain's GDP in all areas, which reinforces the idea that growth will be negative in the fourth quarter of this year," Reuters quoted Tullia Bucco of Unicredit as saying.

At the same time, consultant Markit on Monday reported that its Purchasing Managers' Index for the services sector in Spain fell sharply to 36.8 points in November from 41.8 points the previous month. A figure below 50 points indicates a contraction and one above that level expansion. The services sector accounts for about two-thirds of Spain's GDP and jobs.

"The pace at which Spanish service sector activity has declined in the past two months is particularly concerning, and it now seems highly likely that the economy will record a contraction over the final quarter of the year," Markit economist Andrew Harker said.

"Although the problems in the euro zone clearly impact on the Spanish economy, it is economic crisis and a lack of demand in Spain itself that is more widely reported as being behind the current downturn."

Respondents to Markit's survey reported further job cuts in the month. That concurred with Labor Ministry figures released Friday that showed jobless claims rising to a record 4.42 million. Spain's unemployment rate currently stands at over 22 percent and is expected to rise further.