ECONOMY

Recession tightens its grip, says Bank of Spain

Output shrank 0.4 percent on a quarterly basis after contracting 0.3 percent at the start of the year

Spain’s second recession in three years deepened in the second quarter as the pace in the decline of domestic demand quickened and was only partly offset by a recovery in exports, the Bank of Spain said Monday.

In its quarterly report on the economy, the central bank said output shrank 0.4 percent on a quarterly basis after contracting 0.3 percent at the start of the year. Domestic demand declined 1.2 percent, compared with a fall of 0.5 percent in the first quarter. That reflected a drop in household spending due to high unemployment of about a quarter of the working population. Government spending also shrank due to the government’s austerity drive to rein in the public deficit.

Net external demand — the difference between exports and imports — continued to make a positive contribution to growth. In the case of the second quarter the contribution was 0.8 percentage points on a quarterly basis, “thanks to a moderate pick-up in exports,” the report said. On an annual basis, GDP shrank 1.0 percent in the fourth quarter after declining 0.4 percent in the first three months of the year.

The government last week revised its forecasts to show that output would remain negative next year. It now expects GDP to shrink 1.5 percent this year and by 0.5 percent in 2013 when it initially expected a modest recovery.

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