MercoPress. South Atlantic News Agency

Spanish government confirms Euro zone fourth largest economy is in recession

Economy Minister Luis de Guindos said budget deficit is above 8% of GDP

Spain’s economy is forecasted to contract in the first quarter of 2012 after shrinking in the previous six months admitted Economy Minister Luis de Guindos confirming analysts’ expectations that the Euro zone fourth largest economy is already in recession.

De Guindos also revealed that Spain’s public deficit for 2011 may be higher than the 8% of GDP forecast by the new government. Spain had originally targeted a 2011 deficit of 6% of GDP, but the newly elected conservatives said the deficit would be 8% of GDP or higher.

”We'll need to see, but it's possible that we have gone over the 8% mark, though (we) expect that it hasn't done so by much” de Guindos said during an interview with Cadena Ser radio, his first since taking the post after the conservatives won the November election.

Spain has been a focal point of the debt crisis as the previous Socialist government fought to deflate one of the highest public deficits in the currency bloc by introducing massive spending cuts and tax hikes.

Spain's manufacturing slump showed no sign of letting up in December, adding to expectations the battered economy will shrink in the next few quarters, a purchasing managers' survey showed Monday.

Treasury Minister Cristobal Montoro, speaking at a separate event in Madrid Monday, said the government would announce new economic measures Thursday after the weekly cabinet meeting, but these would not include further spending cuts.

The premium fixed income traders demand to hold Spanish over German debt dropped by 3 basis points to around 329 bps on Monday from settlement Friday, but trade was thin with London markets closed until Tuesday.