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Spanish economy mired in recession

October 30, 2012: 10:58 AM ET

The Spanish economy continues to shrink as the nation suffers its second recession in three years.

Spain's gross domestic product, the broadest measure of economic activity, fell by 0.3% in the third quarter, compared with the same period last year, according to government data published Tuesday. In the second quarter, Spain's GDP declined by 0.4%.

The report from the Instituto Nacional de Estadística confirmed estimates released earlier this month by the Bank of Spain.

The Spanish economy, the fourth-largest in the eurozone, fell back into recession during the first quarter of this year. The malaise has taken a heavy toll on the Spanish people, with one in four Spaniards unemployed.

Meanwhile, Spanish Prime Minister Mariano Rajoy is under pressure to request additional bailout loans from the eurozone rescue fund to unlock potentially unlimited aid from the European Central Bank.

Madrid has already requested up to €100 billion from the European Stability Mechanism to help fill an estimated €59 billion hole in the nation's banking sector left by the collapse of a property bubble.

Related: Fear the worst in Spain

Yields on Spanish 10-year bonds have fallen sharply since September, when the ECB announced plans to intervene in the sovereign debt market on behalf of countries that agree to the terms of a bailout program.

On Tuesday, Spain's 10-year yield fell to about 5.6%, down from a record high of 7.6% in July.

Given the lack of market pressure, Rajoy has been able to resist asking for a full-blown bailout, which would put Spain in the same boat as Greece, Ireland and Portugal. But the economic downturn could make it harder for Rajoy to avoid activating the ECB's backstop.

Standard & Poor's cut its rating on Spain earlier this month, citing the risk of "increasing social discontent" as the Spanish economy slips deeper into recession. S&P also warned of "rising tensions" between the central government and Spain's semi-autonomous regions.

"Right now, the perceived credibility of the ECB's bond-buying plan is shoring up market confidence," said Nicholas Spiro, director of London-base consultancy Spiro Sovereign Strategy. "Country specific risk, particularly in Spain, is being suppressed."

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Ben Rooney
Ben Rooney
Staff writer, CNNMoney

Ben Rooney is a staff writer for CNNMoney. He covers the European debt crisis and other international finance stories, in addition to writing about stocks, bonds, investing and other Wall Street-related news. Follow Ben on Twitter: @ben_rooney

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