Wednesday January 28, 12:26 PM
Spain is in recession for first time since 1993: central bank
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MADRID (AFP) - The Spanish economy is in recession for the first time since 1993, contracting during the final two quarters of 2008, an estimate by the central bank here showed on Wednesday.
Spanish gross domestic product (GDP) shrank by 1.1 percent in the fourth quarter of 2008 compared with output in the previous three-month period, when it contracted 0.2 percent on a quarterly basis, the bank said.
The negative "tendency" for the Spanish economy demosntrated at the beginning of the year "intensified during the fourth quarter, after the international crisis worsened," the bank said.
The generally-used technical definition of a recession is two quarters running of negative economic growth.
Spanish GDP rose by 1.1 percent on an annual basis in 2008 but the bank said this represented a "sharp slowdown from the annual growth of 3.7 percent observed in the previous year".
The national statistics institute INE will publish its official estimate for fourth quarter Spanish GDP on February 12.
Spain's once-buoyant economy, the fifth-biggest in Europe, has suffered as the global financial crisis hit the key construction sector, which was already weakened by oversupply and rising interest rates.
On Friday, the Spanish government slashed its forecast for the economy to a contraction of 1.6 percent this year from the growth of 1.0 percent previously forecast.
It predicts the unemployment rate, already the highest in the 27-nation European Union, will rise to 15.9 percent in 2009 after having dropped to 7.95 percent as recently as the second quarter of 2007, its lowest level since 1978.
Last month the International Monetary Fund warned the Spanish economy, risks entering an extended period of stagnation unless sweeping structural reforms are carried out.
Dismissal costs must be lower to boost hiring, collective bargaining agreements need to be more flexible and the practice of indexing wages to inflation must end, the Washington-based Fund said.
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