Spanish economy shrinks

November 14, 2008
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, MADRID, November 14 – The Spanish economy contracted in the third quarter for the first time since 1993, shrinking 0.2 percent compared with the three months to June, official figures showed Friday.

The figures from the National Statistics Institute (INE) are provisional but if confirmed would mark the end of a 15-year Spanish boom largely driven by the country\’s now collapsing property market.

INE will announce final data on November 19.

The Spanish economy, which expanded 3.7 percent in 2007, grew 0.9 percent when compared with the third quarter last year.

Spain had previously taken advantage of European Union assistance, low interest rates and a willing work force drawn from immigration to become one of the most dynamic EU economies.

But its fortunes suffered a sharp reversal in 2007 when its property market fell apart in the face of tighter credit, rising prices and increased household indebtedness.

The global financial crisis has also taken a toll on Spain, notably has credit for businesses and consumers has dried up.

Spanish households are now confronted with rising joblessness and deteriorating economic prospects and have sharply curtailed spending.

Spain\’s economy is expected to show a contraction in the fourth quarter of the year, signalling that it has fallen into recession, defined as two consecutive quarters of negative growth.

The country\’s eurozone partners, Germany, Ireland and Italy, are already in recession.

Spain\’s Socialist government in September forecast growth of 1.0 percent next year, a projection now seen as optimistic and likely to be revised downward next month.

The International Monetary Fund and the EU executive commission foresee negative growth in Spain next year of 0.2 percent.

Unemployment, after hitting a record 7.95 percent of the work force in the summer of 2007, has now surged to 11.33 percent and could rise as high as 12.5 percent in 2009, according to the government.

The IMF has predicted an unemployment rate next year of 14.7 percent while the EU forecast is for 13.8 percent.

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