Spain: Stuck in Recession

Economic fundamentals for Spain started off on a bad note this week, intensifying worries that the end for the country’s domestic problems is still out of sight.

On Monday, Spain’s National Statistics Institute reported that the Spanish economy further contracted by 0.4 percent in the second quarter of this year, in line with the estimates of Bank of Spain. In the first quarter of the same year, the Spanish economy shrank by 0.3 percent. This is also the country’s third straight contraction.

The slump was said to be due to a decline in household demand, offset by an increase in exports. The economic is predicted to further contract by 1.5 percent for the remaining of this year, and 0.5 percent by next year, according to the conservative government.

Spain has been facing intense pressure as borrowing costs reached unsustainable levels, but the yield on its 10-year bonds dropped after European Central Bank President Mario Draghi pledged to preserve the single currency, with supporting statements from German Chancellor Angela Merkel and French President Francois Hollande.

Another primary concern of Spain is the persistently high unemployment rate, which has now reached 24.8 percent in June, the highest rate in the Euro area. As the country finds ways to plug its budget gap, companies are likely to continue cutting jobs. Such depressing rate is reflecting a growing desperation in the country, with recent government figures showing that about 1 in 10 households has no working adults.

In July, the Spanish Manufacturing PMI improved only slightly to 42.3 points, which is still in the contraction territory. This indicator strongly reflects the weakness of the Spanish economy, with the figure released for June being the worst since the summer of 2009.

Article by AlgosysFx Forex Trading Solutions