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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."

  • Greece is still on ice

    Greece and its international creditors have agreed on the "core measures" of the nation's recovery plan, but discussions over the nation's latest bailout installment will continue.

    The European Union, European Central Bank and International Monetary Fund, known as the troika, said Wednesday that monitors will leave Greece after "productive discussions" over policies to restore economic competitiveness and reduce unemployment.

    But the group has yet to complete a key review of Greece's MORE

    - Oct 17, 2012 3:42 PM ET
    Posted in: , , ,
  • European leaders 'still behind the curve'

    Following years of setbacks and shortfalls, efforts to stabilize the euro currency union finally appear to be taking shape, with policymakers scoring two key victories in as many weeks.

    "It's encouraging to see, but all these measures were necessary to preserve the status quo," said Marie Diron, senior economic adviser at Ernst & Young in London. "Without these things, the situation would have been quite dire, but we've learned to be MORE

    - Sep 14, 2012 7:44 AM ET
  • Euro rescue fund faces hurdle in Germany

    The fate of Europe's latest rescue fund will be decided this week by a high court in Germany.

    At issue is an injunction that would block the German parliament from ratifying the international treaty governing the European Stability Mechanism, or ESM.

    The ESM is a key component of the "breakthrough" agreement announced in June by euro area leaders, including German Chancellor Angela Merkel, that is aimed at stabilizing financial markets and strengthening MORE

    - Sep 10, 2012 7:46 AM ET
  • Spain: One in four is unemployed

    Spain suffered the highest level of joblessness in the eurozone in July, as overall unemployment in the region held steady at a record high.

    One out of every four citizens in Spain is unemployed, according to the latest statistics from Eurostat. The situation is even worse for young Spaniards. The unemployment rate for those under 25 years old is now approaching 53%.

    Spain has been dealing with high unemployment for years. The MORE

    - Aug 31, 2012 11:23 AM ET
  • German business climate getting chillier

    - Aug 27, 2012 11:48 AM ET
  • Will Mario Draghi and the ECB deliver?

    After the Federal Reserve declined to spike the punchbowl Wednesday, fans of monetary stimulus are now entirely dependent on the European Central Bank for a fix.

    In leaving its policies unchanged, the Fed gave investors what they expected, but not what they wanted. Now, all eyes are turning to Frankfurt, where top ECB officials will meet Thursday for their monthly policy discussion.

    ECB president Mario Draghi raised the stakes last week when MORE

    - Aug 1, 2012 3:48 PM ET
  • Why are we surprised by bad jobs numbers?

    Yup. The economic recovery is still low and slow.

    For those of you who remember what vinyl records are, they tend to play the same spot of a song over and over and over again when they are broken. With that in mind, have I ever mentioned to you before that this is a barbecue recovery?

    I've used this term at least a dozen times in stories (and Lord knows MORE

    - Jul 6, 2012 11:47 AM ET
    Posted in: , ,
  • Hooray! Euro is saved ... for the 483rd time!

    European leaders still haven't figured out a way to stop the bleeding.

    Good news from Europe! The euro surged Friday morning on news of a deal to help recapitalize banks. Bond yields in Spain and Italy fell. Stocks around the world rallied and there was a nice pop on Wall Street as well.

    Bad news from Europe! The euro surged Friday morning on news of a deal to help recapitalize MORE

    - Jun 29, 2012 11:28 AM ET
  • Cyprus: 'We need a bailout'

    Cyprus is small but its banks are in big trouble.

    If a eurozone nation is bailed out in the middle of the Mediterranean and nobody hears it fall, does it make a sound?

    Cyprus could soon become the latest, and smallest, member of the euro currency union to request a bailout from the European Union.

    That would make the island nation of just over 1 million people the fifth euro area MORE

    - Jun 14, 2012 3:01 PM ET
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