Spanish economy shrinks into recession

SPAIN’S ECONOMY shrank at its fastest pace in 15 years at the end of last year, pushing it into recession for the first time since 1993 and pointing to further dire output data from across the euro zone.

The 1 per cent quarter-on-quarter contraction was slightly better than an earlier Bank of Spain estimate of 1.1 per cent but it began what the bank fears could be the country’s slide into economic mediocrity without ambitious labour reforms.

The fourth-quarter figure was the worst since early 1993 as the financial crisis dismantled construction and consumer spending booms, and analysts saw the downturn deepening this year as the economy tumbles into its worst recession in half a century.

The data piled pressure on Spanish prime minister José Luis Rodriguez Zapatero to overhaul the jobs market and get loans to credit-starved firms and families after unemployment rose to the highest rate in the European Union at 14.4 per cent in December, according to European Commission figures.

“Spain has entered a prolonged painful recession that may last longer than in the rest of the euro zone,” said economist Tullia Bucco at UniCredit Research.

Germany, Italy and France are expected to report even steeper GDP declines today.

Annual Spanish growth fell to 1.2 per cent in 2008, compared with an average 3.8 per cent in the past decade, the government reported.

Separately, ratings agency Moody’s said the AAA credit ratings of both the United States and Britain were “being tested” by the strains facing the global economy, while countries such as Germany, France and Canada were proving more resistant.

Moody’s said it had split up AAA sovereign countries into three categories, depending on their various abilities to withstand the current crisis, with Ireland and to a lesser extent Spain proving the weakest of the bunch.