Spain Officially In a Double-Dip
Spain's problems were compounded Monday when the struggling European nation reported that its economy sank into recession in the first three months of the year. The report comes on the heels of a Standard & Poor's downgrade of the nation's credit rating last week, and marks the nation's second trip into negative growth territory in the last four years. Making matters worse, economists do not expect the Eurozone's fourth-largest economy to return to fiscal growth until next year as it continues to make deep spending cuts to avoid surpassing EU debt limits and the entire European bank sector continues to struggle amid the sovereign debt crisis throwing the region's economies into turmoil.
Spanish authorities are dealing with increasing public opposition to austerity measures, but also must try to appease its EU peers, who are calling for spending cuts to prove the nation is addressing its growing debt crisis. Keeping EU partners like Germany and France will be vital if Spain continues to slip further into recession and requires bailouts to keep afloat. Even though Spain's first-quarter economic contraction of 0.3 percent was slightly lower than the 0.4 percent decline expected by economists, it nonetheless illustrates that the economy is not growing.
A recession is generally declared whenever a nation's economy contracts for two consecutive quarters, which last happened in Spain during the third and fourth quarters of 2009. With Spain's considerable debt problems, demand for its bonds has fallen sharply in recent months, with their yields rising to right around 6 percent. Economists are keeping a close eye on the bond yields, as economists generally view yields at 7 percent or higher as unsustainable for an economy.