Spanish economy in recession

MADRID: Spain's economy���once one of Europe's rising stars���plunged into recession after official figures showed on Wednesday it had contracted sharply in the fourth quarter of 2008, its second straight quarterly fall.

Spanish economic output fell 1.1 per cent in the last three months of 2008 compared with the previous quarter, the Bank of Spain said. Its third quarter decline was 0.2 per cent, the first in 15 years.

The traditional definition of recession is two consecutive quarters of negative growth. The bank blamed a steep fall in domestic consumption and investment. "According to the data available, the weakening of the Spanish economy intensified in the fourth quarter of 2008," the bank said.

Spain's economy had in recent years been one of Europe's big success stories but has been hit hard by the collapse of a real estate bubble and the global financial crisis.

The construction sector had been the main engine for over a decade of solid growth. As recently as 2007 the Spanish economy expanded by 3.8 per cent. But the construction industry has been devastated over the past two years by higher interest rates on mortgages and a credit crunch at banks.

Bank of Spain economic figures are an estimate that precede official numbers from the National Statistics Institute.

Government officials have been warning 2009 will be a very hard one for Spain and that growth will not return in earnest until 2011. The government has already forecast gross domestic production will fall 1.6 per cent this year and says unemployment now stands at an EU high of 13.9 per cent.

However, Wednesday's numbers were the first ones from a government body that confirmed a technical definition of recession.