Wednesday May 20, 06:58 PM
Spanish economy contracts at record rate
MADRID (AFP) - The Spanish economy shrank at its fastest rate on record in the first quarter as household spending plummeted due to soaring unemployment amid the recession, official data showed Wednesday.
Gross domestic product was down 1.9 percent in the first three months of year from the previous quarter and off 3.0 percent compared to the same period in 2008, the National Statistics Institute (INE) said.
It was the third quarterly contraction in a row after a fall of 1.0 percent in the three months to December and 0.3 percent in the third quarter of 2008.
It was also sharpest decline since INE began recording such figures in 1970.
The outcome was slightly worse than provisional data last week that put the first quarter contraction at 1.8 percent from the previous quarter and 2.9 percent from last year.
Socialist Prime Minister Jose Luis Rodriguez Zapatero, under attack from the opposition over the figures, said they were "less negative than other countries" in Europe.
While the depth of Spain's recession is not as profound as in many other major economies, most economists forecast the Spanish economy will take longer to recover because its economic model has been exhausted.
Spain's economy, Europe's fifth-largest, has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fuelled domestic demand and a property boom fuelled in part by easy access to loans.
Economy Minister Elena Salgado said the government was working on a broad range of reforms from sectors ranging from education to energy which would give Spain a productivity model "which is more balanced and more sustainable."
"There is light at the end of the tunnel which is not a train coming in the other direction," she told parliament.
INE blamed the slump on lower household spending, badly hit by soaring unemployment, which jumped to 17.4 percent in March, more than double the average of 8.3 percent for the entire 27-nation European Union.
It said household spending fell 4.1 percent after a drop of 2.3 percent in the last three months of 2008.
The statistics body said investment in construction had plunged 12.4 percent in the first quarter.
The government has said in recent weeks that Spain has reached the trough of the crisis and predicted signs of recovery would soon be evident.
Zapatero responded to Spain's entry into its first recession in over a decade late last year with a 11-billion-euro stimulus package, mostly aimed at public works which he argues are essential to restoring economic confidence.
Last week his government proposed new incentives to encourage people to buy cars amid a sharp drop in auto sales.
The government says the total value of the measures it has adopted to revive the economy amount to 2.3 percent of Spain's GDP, more than any other nation in Europe.
The European Commission predicts Spain's GDP will fall by 3.2 percent this year and by 1.0 percent in 2010.
The forecasts contrast with Spanish economy ministry estimates, made in January, for a 1.6 percent contraction in 2009 before a return to 1.2 percent growth during 2010.
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