Spain's economy looks set to slip into a long recession after contracting in the last quarter of 2011 for the first time in two years, as Europe's leaders gather to seek out ways to promote growth and jobs in the debt-laden region.
Gross domestic product in Spain, where half of young people are out of work, shrank 0.3 per cent in the last quarter from the July-September period, preliminary data from the National Statistics Institute showed.
That matched economists' forecasts and followed zero growth in the third quarter.
On an annual basis, the economy grew by 0.3 per cent, slowing from 0.8 per cent in the previous quarter but slightly above economist expectations for growth of 0.2 per cent.
"I don't see any way countries like Spain can avoid recession through the first half of the year at the very least. Politicians in Davos are talking about not just relying on austerity and are talking about growth efforts. But that won't be easy, and so a prolonged recession is the risk," said economist at 4Cast Steve Webster.
Many economists are concerned the euro zone's deficit-busting strategies aimed at easing market fears over fiscal imprudence will make growth difficult, potentially condemning the region to a "lost decade".
The Bank of Spain said it expects the economy to shrink 1.5 per cent this year due to stringent cost-cutting aimed at cutting the public accounts shortfall to 4.4 per cent of GDP from around 8 per cent in 2011.
Spain has been gutted by the collapse of the once-powerful property market and tumbling spending by consumers unable to get loans from cash-strapped banks and afraid to spend their nest eggs while faced with massive unemployment.
The economy has remained virtually stagnant since emerging from recession in the first quarter of 2010, with only strong exports keeping it from shrinking again, but a slowdown among key trade partners has hit its only pillar of growth.
The European Commission forecasts 2012 economic growth of just 0.5 per cent for the 17 nations in the euro zone compared with growth of 1.5 per cent in 2011 and 1.9 per cent in 2010.
The International Monetary Fund expects the region to contract 0.5 per cent in 2012 and warned it could drag the world into recession.
Reuters
