Spanish recession deepens as austerity dampens outlook

MADRID — Spain’s recession worsened in the second quarter as the government’s austerity push to reduce the euro area’s third-biggest budget deficit and a slump in consumer spending offset growth in exports.

Gross domestic product fell 0.4 percent from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said Tuesday. That’s in line with an estimate published July 30. Separately, Spain’s borrowing costs fell to the lowest in three months at an auction Tuesday after the nation’s bonds rallied this month on optimism that the European Central Bank will agree on a plan to help peripheral nations.

Gallery

Latest stories from Foreign

Abdullah extends his lead over rival for Afghan presidency

Former foreign minister has 44 percent of the votes with 40 percent of the ballots counted.

Fatal conflict raises tensions in eastern Ukraine

Mayor asks Russia to send “peacekeepers” after shooting at checkpoint outside breakaway city.

South Koreans just want their loved ones’ bodies recovered

South Koreans just want their loved ones’ bodies recovered

As bodies are pulled from ferry, transcript gives clearer picture to the events of its sinking.

40 more maps that explain the world

40 more maps that explain the world

I’ve searched wide and far for maps that can reveal and surprise and inform in ways that the daily headlines might not.

Prime Minister Mariano Rajoy last month gave up on his forecast for a return to growth in 2013 as he unveiled budget cuts that will expand austerity measures to 15 percent of annual gross domestic product by 2014.

Rajoy met Tuesday with European Council President Herman van Rompuy, and both denied that Spain was in talks for a sovereign bailout from its fellow euro-zone countries. “There are no negotiations,” Rajoy said. However, neither leader denied the possibility that Spain will eventually need help.

“We fear that things are likely to get worse before they get better,” said Martin van Vliet, an economist at ING Bank in Amsterdam, who expects Spain will seek additional financial aid as early as next month. “With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted toward a more protracted recession.”

Spain’s northeastern region of Catalonia added to the country’s financial troubles Tuesday by announcing that it will seek $6.3 billion in aid from the central government. Catalonia, a hub of industry and business with Barcelona as its capital, became the third Spanish region after Valencia and Murcia to officially solicit aid. Valencia said it will seek $4.4 billion and Murcia is to ask for up to $375 million.

Separate data Tuesday from the ECB showed that private-sector deposits at Spanish banks fell by a record in July, dropping $93 billion, or 4.7 percent, to nealry $2 trillion. That’s the biggest decline since at least 1997, when the ECB’s data series started.

The Spanish GDP report showed that consumer spending dropped 1 percent in the second quarter, investment dropped 3 percent and government spending declined 0.7 percent. Exports of goods and services rose 1.6 percent. The economy grew 0.4 percent last year, less than the 0.7 percent initially stated, the statistics agency said. The 2010 contraction was 0.3 percent, revised from 0.1 percent.

— Bloomberg News

 
Read what others are saying