Economy contracted 0.3% in Q4

A shrinking economy

For the first time in two years the Spanish economy shrank in the fourth quarter of 2011, according to figures from the National Statistics Institute.

The GDP shrank by 0.3 percent in the fourth quarter of 2011, compared to the previous quarter, roughly in line with expectations and unchanged from previous estimates.

Many economists fear this is the the start of a prolonged slump as Madrid implements austerity measures to deflate a huge budget deficit. Others suggest the country is about to fall into recession once again.

This was the first contraction since the fourth quarter of 2009.

Year-on-year the economy grew by 0.3 percent in the fourth quarter which is in line with forecasts and compares to 0.8 percent in the third quarter.

RBS economist Nick Matthews is hopeful that some countries in the euro-zone will avoid another recession but thinks Spain may find it difficult to avoid.

“Given the need for fiscal consolidation in the country and the pressure that puts on domestic demand, it’s going to be very difficult for Spain to avoid recession,” he said.

Since Spain entered the euro-zone 12 years ago they have been steadily growing but much of the growth was due to the housing explosion fuelled by cheap loans and since the market crashed in 2007 the country has struggled to maintain momentum.

Exports were the only sector to show growth in Q4 although this is slowing because many of the countries trading partners are seeing their own economies stagnate.

Overall the economy grew by 0.7 percent in 2011 compared to a fall of 0.1 percent in 2010.