Recession beckons again, economy minister says

New Economy Minister Luis de Guindos on Monday underscored the enormity of the task facing him by acknowledging that the country has suffered a "relapse" at the end of the year, with renewed weakness to continue into the start of next year.

"In all certainty, in this quarter the Spanish economy has had a relapse, and we will return to negative growth, which will logically determine the shape we are in for next year," De Guindos said at a swearing-in ceremony for the new secretary of state for the economy, Fernando Jiménez de la Torre, and his counterpart at the trade department, Jaime García Legaz. "Let nobody fool themselves; the next two quarters from the point of view of growth and from the point of view of employment are not going to be easy."

Whilst avoiding the word recession, De Guindos estimated negative growth in the fourth quarter of the current year of between 0.2 and 0.3 percent, and warned the economy could also fail to advance in the first three months of next year. Activity ground to a halt in the third quarter of 2010 after a timid recovery that commenced at the start of last year when Spain inched out its worst recession in living memory.

The renewed downturn augurs badly for the labor market where the jobless rate is already over 21 percent and is expected to climb to over 22 percent, with more than five million people unemployed.

Apart from reviving growth Prime Minister Mariano Rajoy's economic team also faces the challenge of cutting the country's public deficit from a projected six percent of GDP this year to 4.4 percent in 2012. Rajoy said last week that if the 2011 figure is achieved, budget savings of 16.5 billion euros will be required to meet this year's target. Finance Minister Cristóbal Montoro is due this Friday to unveil to fellow Cabinet members what belt-tightening measures will be needed.