Spain back in recession after first-quarter contraction

The Spanish economy is officially in recession, according to the latest figures.

The National Statistics Institute said the economy shrank 0.3% over the three months to the end of March, the second consecutive quarterly contraction.

But the contraction was not quite as much as economists had been expecting.

Concern over the weakness of the economy and the deficit have driven up the cost of borrowing for Spain, raising fears it will need a bailout.

Separately, Standard and Poor's downgraded the credit ratings of nine Spanish banks, including Santander and BBVA.

A report in the Financial Times on Monday said that the Spanish government is considering helping the banking industry by allowing them to put bad loans into a government-organised fund.

But according to the report it is not clear how much benefit the scheme will have, as government officials say banks will have to match the bad loans deposited with provisions for that debt on their own balance sheets.

Meanwhile, many Spaniards are affected by the crisis.

On Friday the government said that unemployment hit a record in March of 24.4%.

And on Sunday, tens of thousands protested planned cuts in healthcare and education.

The cuts are part of the government's effort to reduce the public deficit to to 5.3% of gross domestic product in 2012, from 8.5 percent last year.

But that effort is being hampered by the lack of growth. Spain only emerged from a year-long recession in early 2010.

That prompted the Foreign Minister Jose Manuel Garcia-Margallo to say: "The figures are terrible for everyone and terrible for the government... Spain is in a crisis of huge proportions."

Guillaume Menuet, an economist at Citigroup, said: "Spain's still very much recession and we think that this isn't going to improve soon."

"It's likely they'll have to create more fiscal tightening in order to catch up if they wish to avoid going into [a bailout] plan, and that's going to be counterproductive."

Spain's performance contrasts with Germany, which on Monday announced that retail sales had risen 0.8% in March.

BBC