“Spain’s recession deepened more than economists forecast in the fourth quarter as the government’s struggle to rein in the euro region’s second-largest budget deficit weighed on domestic demand.
Gross domestic product fell 0.7 percent in the three months through December from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said today. That’s more than the 0.6 percent contraction the Bank of Spain predicted on Jan. 23. GDP dropped 1.8 percent in the fourth quarter from a year earlier and 1.37 percent in the full year from 2011, INE said.
The European Commission this week signaled it may recommend easing Spain’s budget goals for the fourth time in a year as unemployment in the euro region’s fourth-largest economy rose to a record 26 percent at the end of Prime Minister Mariano Rajoy’s first year in power.
“Risks on this number are clearly on the downside,” Ruben Segura-Cayuela and Laurence Boone, London-based Bank of America Merrill Lynch economists, wrote in a note after INE released GDP data. “The recent behavior of indicators would suggest a stronger impact than anticipated of tax increases on domestic demand.”
Spreads Narrow
The yield on Spain’s 10-year benchmark rose one basis point to 5.17 percent at 10:42 a.m. in Madrid after a euro-era high of 7.75 percent in July. The spread with German borrowing costs has narrowed around 45 percent to 3.47 percentage points. Investors see bonds from so-called EU periphery countries offering even more gains than last year after European Central Bank President Mario Draghi pledged to do whatever is needed to save the 17- nation euro….”
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