Spain fails to shake off recession

While Greece\'s debt and deficit crises are seen as posing a real risk to eurozone cohesion, and are the focus of a critical European Union summit in Brussels, Spain too has rattled investors in recent days.

The economic downturn has taken a heavy toll on the country, where a near 19 percent unemployment rate is the highest in the 27-member EU.

Europe\'s fifth-largest economy has proved especially vulnerable to the global financial crunch because growth relied heavily on credit-fuelled domestic demand and a property boom -- boosted by easy access to loans -- that collapsed in late 2008 after a decade of frenzied building activity.

There are now doubts Spain will be able to slash its public deficit to the EU limit of 3.0 percent of national output by 2013, as it has promised, after the shortfall widened to 11.4 percent last year.

European Union leaders are reported to be mulling a deal to salvage Greece, where the public deficit is currently 12.7 percent, a step they would not want to have to apply to Spain as well.

The Spanish economy shrank 0.1 percent in the fourth quarter of 2009 compared with the third, the national statistics agency INE reported Thursday -- it was its sixth quarterly contraction in a row.

The statistics agency said gross domestic product (GDP) contracted by 3.1 percent compared to the last three months of 2008, with the economy shrinking 3.6 percent overall in 2009.

Spain\'s Socialist government, which says the worst of the slump is over, has forecast a return to growth in the second half of this year, although a contraction of 0.3 percent is predicted for the whole of 2010.

The International Monetary Fund expects the economy to contract 0.6 percent this year, compared to growth for the 16-nation eurozone of 1.0 percent.

The government insists that recent measures taken, including planned spending cuts of 50 billion euros (68 billion dollars), will bear fruit.

Total accumulated public debt is projected to rise from 55.2 percent of GDP in 2009 to 74.3 percent in 2012, also well above Europe\'s 60-percent limit.

As pressure built on Madrid to shore up its public finances, Prime Minister Jose Luis Rodriguez Zapatero on Tuesday urged calm and stressed Spain\'s "solvency and solidity."

"It is true that we have a grave economic crisis that has brought with it a high public deficit level, the highest in our history," Zapatero told a meeting of Socialist lawmakers in Madrid.

"There are movements that have brought a great deal of concern... on the stock market. It seems there are speculative movements," Zapatero said, calling for "tenacity, hard work and calm."

"The solvency and solidity of our country is obvious," he added.

The government, bristling at comparisons with Greece, has asserted that Spain\'s overall public debt burden is substantially lower than that Greece\'s level of 113 percent of GDP.

Officials have also pointed to a tradition of fiscal discipline in Spain, along with a savings rate that amounted to 18-20 percent of GDP.

© Copyright AFP Agence France-Presse GmbH - All rights reserved. This material may not be published, broadcast, rewritten or distributed. All reproduction or redistribution is expressly forbidden without the prior written agreement of AFP.