Spain’s recession is deepening in the second quarter as the economy takes a battering from the financial markets, the nation’s central bank said Wednesday.

Economic output was shrinking at a faster pace, after contracting by 0.3 per cent in the first three months of the year, the Bank of Spain said in its monthly bulletin.

“Most recent information about the second quarter indicates that activity has carried on decreasing at a more intense pace,” it said.

Consumer and business confidence had deteriorated, the central bank said, and there were signs that people were gripping their wallets tighter with new car registrations and retail sales sliding.

“On the labour market as a whole, we continued down the path of an intensifying destruction of jobs that began in the second half of 2011,” the bank said.

The number of registered workers declined 3.4 per cent in May, it said.

Spain’s unemployment rate hit 24.4 per cent in the first quarter of the year, the highest level in the industrialised world.

“In the last few weeks the Spanish economy has seen itself strongly affected by the new outbreak of tensions in euro area financial markets,” the Bank of Spain said.

The rate of return the Spanish government has had to pay investors to finance itself has shot up in recent weeks, partly on fears Spain will need a full-blown bailout after the eurozone offered up to 100 billion euros ($125 billion) to save banks exposed to the collapsed property market.

Prime Minister Mariano Rajoy highlighted those worries on Wednesday on the eve of a European Union summit, saying: “We cannot finance ourselves for a long time at prices like those we are now paying.”

Economy Minister Luis de Guindos has already warned of a contraction in the second quarter after the economy shrank by 0.3 per cent in the last quarter of 2011 and by the same amount in the first quarter of 2012.

The economy minister has estimated that Spanish gross domestic product will shrink by a total of 1.7 per cent this year, but he forecasts slight growth of 0.2 per cent in 2013.

Spain’s government says it is determined to press ahead with an austerity programme to rein in its mushrooming debt despite the economic troubles, saying the priority is to regain investor confidence.

The public deficit—the shortfall between income to spending—was equal to 8.9 per cent of annual GDP last year, far wide of 6.0 per cent level agreed with the European Union.

Spain’s government is now aiming to slash the deficit to 5.3 per cent this year and to 3.0 per cent—the EU deficit ceiling—in 2013.

Recession and unemployment complicate that task, however, because they reduce government tax revenues while increasing expenses on items like jobless benefits.    

The Daily Independent/Bangladesh/ 28th June 2012