Central Bank Says Spain Economy Shrinks in Final Quarter of 2011

Spain's economy shrank in the final quarter of 2011, battered by financial market tensions and a deteriorating global economic outlook, the Bank of Spain said Thursday.

The grim report fed widespread fears that Spain has already slumped into a recession after the economy, dragged down by a 21.5-percent jobless rate, posted zero growth in the third quarter of 2011.

"After the stagnation the Spanish economy showed in the third quarter, the available economic information, still incomplete, indicates activity contracted in the final months of the year," the bank said.

The bank's monthly report cited a backdrop of strong financial market tensions and the deteriorating growth prospects in the Eurozone and the rest of the world.

Consumer spending showed "marked weakness", investment in equipment was lethargic, and construction spending continued its long decline, the central bank said.

Spain's new Economy Minister Luis de Guindos this week warned the economy would "surely see a downturn" in the final quarter of this year, feeding the recession fears.

A recession is commonly defined as two quarters of contracting activity in a row.

Spain only emerged at the start of 2010 from an 18-month recession triggered by the global financial crisis and a property bubble collapse, which destroyed millions of jobs and left banks with huge bad loans.

A new right-leaning government led by Prime Minister Mariano Rajoy won power in November 20 elections and has set a tight timetable for reforms to fix the economy and reduce the public deficit.

Its top priority is to cut unemployment, with about five million people estimated to be seeking work.

Rajoy has said he will slash Spain's deficit by 16.5 billion ($21.7 billion) in 2012 through sweeping cuts, with only pensions escaping the knife, as well as cleaning up banks and reforming the labor market.