Spanish recession continues as economy shrinks

MADRID

Spain remained in recession in the third quarter as its economy continued to shrink, although at a slower pace than earlier in the year, the government reported Thursday.

Spanish gross domestic product fell 0.3 percent in the July-September period from the previous quarter, its fifth consecutive drop and technically keeping it in recession.

In the first quarter, the economy shrank by 1.1 percent, the National Statistics Institute said in a preliminary report. Definitive figures will be released Nov. 18.

The once-robust economy fell at an annual rate of 4.0 percent in the third quarter, compared to 4.2 percent in the second.

It said the improvement stemmed from a "less negative" contribution from domestic demand and a strong performance from exports.

Spain's economy has been shrinking since the third quarter of 2008 as a boom fueled by real estate construction and consumer spending collapsed.

The unemployment rate has roughly doubled in less than two years and now stands at 17.9 percent, an EU high. It is projected to rise before the economy starts to recover some time next year.

The government has injected billions of euros (dollars) into the economy in job-creating public works and other projects. Along with increased outlays for unemployment benefits, this has caused the government's deficit to soar. It is forecast at 8.1 percent for next year in the 2010 budget that the lower chamber of Parliament passed Wednesday night.

That budget also includes hikes in VAT and capital income taxes to help the government chip away at the deficit. The text now goes to the Senate. A spending blueprint must be passed by Dec. 31.