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Bank of Spain Says Economy Shrank in Final Months of 2011

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Dec. 29 (Bloomberg) -- The Bank of Spain said available data suggest the euro area’s fourth-biggest economy contracted in the final months of the year, a day before Prime Minister Mariano Rajoy is set to unveil his first budget measures.

The central bank said in its December monthly bulletin published today that tourism and exports showed signs of weakening from October while household spending and investment worsened, adding the data aren’t yet complete. Spain’s fragile recovery in the first half was sustained by exterior demand as the most drastic austerity measures in three decades pushed unemployment to a 15-year high.

The Bank of Spain confirmed earlier forecasts that the economy is worsening as Rajoy, who holds his second Cabinet meeting tomorrow, has said he’ll announce his plans to carry the nation through until a 2012 budget is presented in the first quarter. Rajoy’s People’s Party, which inherited a stalled economy from the Socialist government after winning in a landslide on Nov. 20, now faces the double challenge of tackling the euro area’s third-largest budget deficit and Europe’s highest jobless rate.

“After the Spanish economy stalled in the third quarter, available data show that activity contracted in the last months in an environment of strong tensions in the financial markets” and weakening growth prospects in the euro area and the rest of the world, the central bank said.

In October, exports of goods rose at less than half the pace registered in the third quarter and the increase of tourists slackened in November, the Bank of Spain said. Indicators show a “marked weakening” of household consumption and investment in the last quarter while the construction industry remains on a “path of contraction,” it said.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net