SPAIN confirmed its timid recovery from recession this week with 0.2 percent growth in the second quarter but analysts warned of more bad times ahead as austerity measures begin to bite.

On a year-on-year basis, Spanish Gross Domestic Product still shrank 0.2 percent but this was better than the contraction of 1.3 percent in the first quarter, the National Statistics Institute (INE) said in provisional data.

The INE will release definitive figures on August 26.
Spain slumped into its worst recession in decades at the end of 2008 as the global financial meltdown compounded a crisis in the once-booming property market and it only just recovered with first quarter growth of 0.1 percent.

However, the upturn, already substantially weaker than in Germany and France, where second-quarter growth was 2.2 percent and 0.6 percent respectively, is expected to grind to a halt in the current quarter to September. Socialist Prime Minister Jose Luis Rodriguez Zapatero conceded on Tuesday that “the third quarter will not be as good as the second.” The government predicts the economy will contract 0.3 percent in 2010 and then expand 1.3 percent in 2011.
Other organisations are far more pessimistic, raising doubts over the government's ability to rein in its massive public deficit.
The Bank of Spain expects a contraction of 0.4 percent this year before a return to growth of 0.8 percent next year while the International Monetary Fund has revised its 2011 growth forecast down from 0.9 percent to 0.6 percent.

A study released by the BBVA bank predicted Spain's economy will shrink 0.6 percent this year ahead of growth of just 0.7 percent in 2011.
Financial analysts expect government belt-tightening measures, a rise in sales tax in July and the end of subsidies on new-car purchases will combine to push the economy into reverse again. “This was an encouraging performance after Spain endured a torrid second quarter as the sovereign debt crisis raged across the eurozone,” Raj Badiani, an analyst with IHS Global Insight, said in a research note. “However, IHS Global Insight remains fearful that the economy could slip back into a technical recession by the end of 2010 or early 2011, with consumer spending likely to fall away in the second half of the year ... (due to) the rise in VAT (Value Added Tax) the end of the car scrappage scheme. “In addition, the second quarter of 2010 could be the last quarter for some time where the government is able to prop up effectively the struggling economy.” The government this year introduced tough austerity measures to slash the public deficit from a massive 11.2 percent of GDP in 2009 to six percent in 2011 and three percent -- the EU limit -- by 2013.


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