Financial News

Spain is in a double dip recession

It’s official. Spain is suffering from a double dip recession. The figures for the first quarter of 2012 show that Spain’s economy contracted by 0.3% in that period. The news follows a similar contraction for the previous quarter, compounding the fears of Spaniards and onlookers that the economic situation is getting worse.

The question is: will Spain need a bail out or can the country paddle its own canoe?

Downgrade in investment status

Rating agency Standard & Poor downgraded Spain’s credit rating from A to BBB+, which will seriously affect the country’s ability to borrow at decent rates.

What is more, the rating agency put the country on negative outlook – indicating that they thought that things were going to get worse not better. However, the BBB+ rating is still investment grade, and spokesmen from Standard & Poor did not foresee Spain being in any immediate danger of defaulting on its existing debt.

Plans for a bad bank

While sovereign debt may be solid, commentators are worried about the state of Spain’s private banks. Like Ireland, the country enjoyed a large property boom over the last decade. However, that boom proved unsustainable in the long term, and the banks that fuelled that boom have been left with left with portfolios of toxic debt.

The Economy Ministry has confirmed that there are plans to set up a so called “bad bank” to receive bad assets and sell them off, but unlike Ireland, there are no plans to use taxpayers’ money for this.

Social unrest

The level of unemployment in Spain, particularly among young people, is eye watering. One in four Spaniards of working age is out of work. But when you look at young people alone, that figure is close to 50%. This has led to concerns about a workless generation, whose lack of employment experience may in turn make them unemployable.

The formerly large public sector has been affected by swingeing austerity cuts, which have led to tens of thousands of citizens protesting on the streets.

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