SPAIN’S ECONOMY and competition minister Luis de Guindos has said the euro area’s fourth-largest economy has suffered a “relapse” and will contract as the People’s Party takes over the nation’s finances from the Socialists.

“The Spanish economy has had a relapse and we are returning to a negative growth rate,” Mr de Guindos said in Madrid yesterday.

Prime minister Mariano Rajoy, who named his government last week after his party’s landslide election victory on November 20th, has pledged to tackle the budget deficit.

Mr De Guindos is in charge of overhauling the financial sector to restore the flow of credit and of battling a 23 per cent jobless rate.

Spain’s economy contracted in the final three months of the year and would remain weak in the first quarter of 2012, he said yesterday.

Economists say the country’s GDP was flat in the third quarter and is likely to have shrunk in the final quarter, hit by the euro zone debt crisis, slowing exports and sliding domestic demand, economists say.

“It is certain that the Spanish economy shrank in this quarter . . . which will determine how we begin next year, relatively decelerated,” Mr de Guindos said. “The next two quarters – we shouldn’t fool ourselves – won’t be easy from the point of the view of the economy or employment.”

Mr De Guindos said he expected the economy to shrink in the first quarter of next year after contracting by 0.2 per cent to 0.3 per cent in the last three months of 2011. Two consecutive quarters of economic contraction is defined as a recession.

Spain emerged from an 18- month recession in the first quarter of 2010 but has struggled to grow ever since, weighed down by a collapsed property sector, massive unemployment, sliding domestic demand and weakening exports.

The new government plans to reveal emergency economic measures on Friday to show it is determined to rein in public spending and the deficit. – (Bloomberg)