Spain's central bank says economy shrank

Written By Unknown on Selasa, 23 Oktober 2012 | 18.59

SPAIN'S central bank says the country's economy continued to shrink, contracting by 0.4 per cent during the third quarter compared with the previous three months, increasing pressure on Prime Minister Mariano Rajoy to seek help from Europe.

This is the fifth quarter in a row that Spain's economic output has shrunk.

The country's economy also contracted by 0.4 per cent in the second quarter and 0.3 per cent in the first quarter and is forecast to show a 1.5 per cent fall this year and 0.5 per cent in 2013.

The central bank figure is an estimate.

Official figures are due to be released by the National Statistics Institute on October 30.

The bank said on Tuesday consumer demand fell by 1.2 per cent - although the decline eased a little in the third quarter due to increased spending ahead of a sales tax increase on September 1.

Spain is in its second recession in three years with near 25 per cent unemployment.

The country is one of the focal points in Europe's financial crisis - if Spain defaults on its debts or needs a full-blown bailout, the finances - and credibility- of the 17-country group that uses the euro could be stretched to breaking point.

In September the European Central Bank said it was prepared to buy unlimited amounts of bonds in countries struggling with their debts.

This has helped the country by pushing its borrowing costs lower.

But Rajoy has held off triggering the actual purchases.

The government has introduced austerity measures and financial and labour reforms in a bid to convince investors it is getting a grip on its accounts.

The measures have led to many strikes and protests and the country faces its second general strike in a year on November 14.

Several thousand people are expected to take part in a demonstration later on Tuesday outside parliament as deputies begin debating 2013 budget spending cuts.

Two similar protests are planned for Thursday and Saturday.

Also on Tuesday, the Treasury sold 3.53 billion euros ($A4.50 billion) in three- and six-month bills as investors continued to express their concern over Spain's ability to manage its finances.

The Treasury sold 967 million euros in three-month bills with the average interest rate at 1.42 per cent, up from 1.20 per cent in the last such auction on September 25.

It sold 2.56 billion euros in six-month bills on a yield of 2.02 per cent, down from 2.21 per cent on September 25.

Demand was more than four times the amount offered in the three-month category and almost double in the longer-term bills.


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