MercoPress. South Atlantic News Agency

Spanish economy keeps contracting in the second quarter: down 1.1%

Economy Secretary Campa expects Spain to rebound in the second quarter of 2010

The Spanish economy shrunk more than expected in the second quarter in contrast with signs of recovery in France and Germany, according to the latest release from the Statistics Institute. Second quarter GDP contracted 1.1% quarter-on-quarter, a slight improvement on the first quarter when the economy shrunk 1.6%, mostly due to a hefty state stimulus spending plan.

The Spanish government has poured over 15 billion Euros into the flagging economy in the first half of the year in an attempt to restart a paralyzed construction industry and stimulate demand, once central pillars of growth in Spain.

The Statistics Institute revised 2008 year-on-year GDP growth to 0.9% from a previous 1.2% on Wednesday. Despite the downward revision, the government reiterated its own forecasts for a 3.6% year-on-year contraction in 2009 and expectations of a return to quarterly growth in the second quarter of next year.

“These figures confirm our forecasts for 2009 and for positive growth by the second quarter of 2010. However, it's important to remain prudent given the current situation in which we are in” said Economy Secretary Jose Manuel Campa.

Public spending and external demand were the only two factors to have made a significant positive contribution to GDP. Most other sectors shrunk as Spain's recession dragged on for the fourth consecutive quarter.

Domestic demand, a major contributor to strong growth during the boom years in Spain, shrank 7.3% year-on-year in the second quarter, following a revised 6.1% fall in Q1. Spanish unemployment in June was more than double the European average at 18.1% according to Eurostat.

However signs of a turn around in private consumption and investment had started to appear in the third quarter, Campa said.

“Since July there have been some indicators which we think will help demand, including consumer confidence and an increase in purchasing power due to the lower interest rates” Campa said.

The Spanish economy contracted 4.2% year-on-year in the second quarter, its worst annual drop since comparative figures began in 1970.

Spain's data follows modest growth in Germany and France, which both exited recession in the second quarter.