Spanish economy shrinks faster; treasury won’t ask for Euro funds

Spain’s downturn deepened in the second quarter, with the economy shrinking 0.4 percent after contracting 0.3 percent in the first three months of 2012, official data showed Monday.

The figures from the national statistics institute INE confirmed Bank of Spain data issued last week, compounding the problems the government faces in an economy expected not to return to growth until 2014.

INE said the second quarter outcome reflected “weaker domestic demand which was offset in part by a positive contribution from external demand.”

Earlier this month, the government said the economy would continue in recession next year, shrinking 0.5 percent instead of growing 0.2 percent as previously expected.

The economy was tipped to shrink 1.5 percent this year, with unemployment hitting an unprecedented 24.6 percent, it said.

Spain, in a tailspin since a massive property bubble burst in 2008, was forecast to return to growth of 1.2 percent in 2014 and 1.9 percent in 2015.

The International Monetary Fund expects the Spanish economy to shrink 1.7 percent this year and 1.2 percent in 2013.

Spain won’t request Euro funds

Meanwhile, Spain will not ask for European funds to buy its debt despite the fact that the country needs its borrowing costs to fall soon, the head of the country’s Treasury said in an interview with Spanish daily Expansion.

Inigo Fernandez de Mesa also said the Treasury would issue debt in 2013 for those regions that asked for financing help.

Spain’s 17 autonomous regions are shut out of capital markets, and many are considering tapping an 18 billion euro liquidity line from the central government to help meet their financing needs.

“It is not on Spain’s agenda to ask for the fund to buy debt, not at all. It hasn’t happened, and I can assure you it won't happen,” Fernandez de Mesa told Expansion.

On Saturday, Eurogroup head Jean-Claude Juncker said leaders would decide in the next few days what measures to take to tackle Spanish bond yields, which last week touched euro era highs.

Fernandez de Mesa insisted yields of around 7 percent on Spain's 10-year debt did not correspond to the fundamentals of the economy and added that he hoped to see a correction before long in the markets.

He said that despite a difficult environment the Treasury was in a decent position with the average cost of debt issued by Spain this year at 3.27 percent, down from 3.9 percent last year, and 68 percent of its medium and long-term issuance planned for the year now issued.