On Monday April 23, the Bank of Spain, confirmed that the country had slipped into recession for the second time in two years, with estimates that GDP fell 0.4 percent in the first quarter of 2012.
This follows on from a fall of 0.3 percent in the final quarter of 2011. If a country has two sequential quarters of GDP shrinkage, it is said to be in recession.
Despite heavy austerity measures, most of which are very unpopular with the Spanish public, there seems no light at the end of the Spanish economic tunnel, according to El Pais. The bank's report said:
“Developments in the Spanish economy over the coming quarters will be subject to uncertainty and to downside risks associated with the possible ups and down of the sovereign debt crisis”. The announcement led to a sharp drop in shares on the Spanish IBEX stock exchange.
The Wall Street Journal says that:"The central bank numbers, released about a week before the government's official data, confirm that Spain is far from a much-needed economic rebound".
Measures such as big cuts in spending on health and education and tax increases across the board mean minimal growth in the economy as Spaniards prefer to hang on to what little money they have. The Wall Street article also reports that Spain's borrowing costs have "surged" and that its "debt insurance costs hit a fresh record."
Businessweek points out that the dip back into recession is not surprising stating:
"Prime Minister Mariano Rajoy has already pushed through a series of labor market and financial sector reforms, taken drastic deficit-reduction measures, and warned Spaniards to that things will get worse before they better. The jobless rate is nearly 23 percent and expected to rise."
The Businessweek report says that Spain had only just managed to get out of recession in 2010 following the bursting of the property bubble in 2008. Now, it says, investors are worried that the government may not be able to resurrect the economy.
Meantime, Mariano Rajoy insists that he will reduce the budget deficit from 8.5 percent of GDP to 3 percent by 2013. Many analysts believe that he has set himself an impossible task. José Ignacio Conde-Ruiz of the economic research group FEDEA. says,
"To reach his goal we will have to make the biggest cuts in modern history, and that can only be done by taking the knife to major items like salaries, pensions, and other welfare benefits. Then there is the question of whether doing so would be a good idea at a time of deep recession."
The Spanish public sit and watch as their health benefits are cut, their children's education suffers, the unemployment figures rise daily, taxes go up as do prices for everyday necessities and wonder how much worse things will get.