Spanish economy continues to shrink

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The Independent Online

Spain's unenviable position of being the last major Western economy still mired in recession remains in place, with official statistics revealing today that its GDP shrank by 0.1 per cent in the final three months of last year.

The latest shrinkage, the seventh successive quarterly fall for the Spanish economy, means that GDP was down by 3.6 per cent as a whole during 2009 according to the National Statistics Institute.

However, Elena Salgado, Spain's finance minister, insisted that an end to the country's recession was in sight. "Our exports continue to do well, the fall of consumption is slowing down and department store sales are beginning to recover - vehicles sales too," she told Spanish radio.

The country has been hit by a calamitous collapse in the property and construction sector, which rapidly spread into consumer-facing industries. Unemployment is running at a record rate of one in five and the latest economic growth figures will intensify speculation that the country's public finances are parlous.

Spain has been at pains to insist that its borrowing is not as troublesome as in Greece and any suggestion that the country, one of the largest economies in the single currency zone, is facing a Greeek-style financial crisis would be a major blow to confidence in the euro.

However, at 11.4 per cent of GDP, Spain's borrowing this year is amongst the highest in the eurozone, though its total debt is much lower, at around 60 per cent. It also retains a AAA rating from credit rating agencies and has won praise for a three year programme of austerity measures already announced.