Spain’s Economy Contracts on Spending Slump, Exports

(Corrects text of headline to show economy contracted)

Spain’s economy shrank in the first three months of 2012 as exports slowed and household spending fell amid the harshest austerity measures in more than three decades aimed at taming the euro area’s third-largest deficit.

Gross domestic product declined 0.3 percent from the previous quarter, when it fell the same amount, the Madrid-based National Statistics Institute said today, confirming an April 30 estimate. Household spending contracted 0.6 percent from a year earlier, while exports rose 2.2 percent, slowing from 5.2 percent in the previous quarter, INE said.

Prime Minister Mariano Rajoy, in power since Dec. 21, is battling a surge in borrowing costs as investors’ concern about Spain’s banking industry and a possible exit of Greece from the euro increases the risk of contagion from Europe’s debt crisis.

The yield on Spain’s benchmark 10-year bond rose to 6.317 percent today, compared with less than 5 percent in early March, before Rajoy’s People’s Party government said the country will miss its 2012 budget deficit target.

The extra cost investors demand to hold Spanish bonds rather than German debt was 485 basis points, after rising to a euro-era record of 5.07 percentage points yesterday.

Plugging Car Sales

Rajoy’s government forecasts a 1.7 percent contraction this year as it raises taxes and cuts public spending to reduce the deficit by around 27 billion euros ($34 billion) with the country’s 17 semi-autonomous regions aiming to halve their own shortfall.

The nation’s unemployment rate, the highest in the European Union at 24.4 percent, leaving half of young people without a job, is weighing on demand. A 22 percent plunge in car registrations in Spain contributed to European deliveries’ declining for a seventh consecutive month in April, the Brussels-based European Automobile Manufacturers’ Association said yesterday.

“Spain is suffering a relapse, which is more intense than the European average, practically without having recovered from a four year-long crisis,” Economy Minister Luis de Guindos said on Feb. 7.

To contact the reporter on this story: Angeline Benoit in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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