Pain in Spain
According to the Central Bank of Spain, the Spanish economy has shrunk by 0.2% in the third quarter compared to the previous 3 months. This is the first such drop in economic output in 15 years when in 1993 the economy shrunk by 0.3% relative to the previous quarter.
The Bank of Spain claims this decline is due to weaker domestic demand and a worsening of the global economic crisis. Spain’s gross domestic product climbed 0.9 per cent relative to the third quarter of last year, or half the inter-annual growth registered in the second quarter.
This decrease is due to a lack of consumer confidence, increased unemployment and the erosion of disposable income due to higher inflation.
On a more positive note inflation across the 15 nations that share the euro has fallen to an annual rate of 3.2% this October, which it is hoped will lead to a cut in interest rates next week as this gives the European Central Bank (ECB) more room to manoeuvre.
The ECB last cut rates to from 4.25% to 3.75% earlier in the month in a co-ordinated move with the Bank of England and US Federal Reserve. It is now hoped that there might be a further half-point cut next week bringing it to 3.25%.
If this does happen it should alleviate some of the pressure that is affecting the Spanish economy as it has been particularly hit by high inflation over the last few months.
Regards
Andrew Belles
