At the end of March, the Spanish economy had experienced negative GDP growth for two straight quarters, which signaled that the country has slipped back into a technical recession, which is commonly defined as two consecutive quarters of economic contraction. After growth flagged 0.3% quarter-to-quarter in Q4 2011, the Bank of Spain predicted that growth would slow by 0.4% during Q1 2012 and warned of an intensification to the contraction trend caused by cutbacks.
Further, unemployment increased 4% year-to-year, which puts all eyes on the next Active Worker Poll, which will appear on Friday. This survey could confirm an unemployment rate as high as 24% in Spain, which compares to 22.85% at the end of 2011. High unemployment numbers result, in part, from fiscal cutbacks carried out in Spain in order to reestablish the trust of the EU and investors in Spanish companies and sovereign debt, according to the Bank of Spain director.
Still, the Bank of Spain is prioritizing the effort to restore credibility in the Spanish economy as the country attempts to restructure its banking sector and scrupulously adhering to Spain's 2012 National Budget that Congress is discussing today.
"It is critical to avoid feeding any risk that would derail the national budget that could result if earnings are lower than expected or if cutting some areas of spending proves too difficult," the report indicated.
The Banks of Spain predicts that the GDP will contract 0.5% year-to-year during Q3 2012.
