Page last updated at 15:38 GMT, Wednesday, 19 November 2008

Spain 'to slide into recession'

Construction cranes in Madrid
Spain's economy has been relying heavily on construction

Spain is likely to slip into recession in the fourth quarter and stay there into 2009, Bank of Spain head Miguel Angel Fernandez Ordonez has said.

His comments followed figures showing that the Spanish economy had contracted by 0.2% in the third quarter, the first shrinkage since 1993.

"The scenario for the next quarters is very similar to that of the third quarter," Mr Ordonez said.

The eurozone officially entered recession last week.

CSFB analyst Giovanni Zanni said: "We have a slightly worse forecast for Spain than for the rest of the euro area."

'Faster decline'

Spain's economy has relied heavily on construction and consumer spending, but the global financial crisis and rising unemployment have hit economic expansion hard.

The central bank boss has forecast an intensified slump in spending on new construction projects. Consumer spending will also slow further, he added.

Analysts said that the third-quarter figures reported by the National Statistics Institute were worse than expected.

"The consumer slowdown is faster than expected and also the contraction in investment is worse than expected, and points to a faster rate of decline in the fourth quarter," said Jose Luis Martinez at Citigroup.

Reforms

The Organisation for Economic Co-operation and Development (OECD) said that the downturn in the Spanish economy was at "an early stage".

"Nonetheless, it has already resulted in a marked increase in unemployment, hitting workers in low skill occupations, including immigrants, particularly hard," the OECD said in a report.

It said that Spain should take steps to improve worker training and to increase competition in certain sectors of the economy.

The International Monetary Fund has predicted that Spain's economy will grow by just 1.4% in 2008, slower than expected, and shrink by 0.7% in 2009.

Spain's Labour Ministry reported at the beginning of November that the country's unemployment rate had reached a 12-year high of 11.3%.

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