Spain in big trouble

Spain's gross domestic product (GDP) contracted by 0.3 percent in the first quarter of this year, the National Statistics Institute (INE) reported on Monday. This means that the fourth biggest economy in Europe is now officially in recession after shrinking for two quarters in a row.

Year-on-year, first-quarter contraction was put at 0.4 percent. The figures provided by INE on Monday differed only slightly from those given last week by the Bank of Spain. It had said the Spanish economy shrank by 0.4 percent in the first quarter of 2012.

Also on Monday, US rating agency Standard and Poor's downgraded the ratings of all top Spanish banks, after cutting the country's sovereign debt rating on Friday by two notches to BBB-plus.

Uphill battle

The individual banks affected by S&P's move were Santander and its subsidiary Banesto, BBVA, Banco Sabadell, Ibercaja, Kutxabank, Banca Civica, Bankinter and the local unit of Barclays.

Spain is grappling with the highest unemployment rate in the industrialized world, with 24.4 percent of people currently out of a job. The country is faced with mounting debt and falling revenues amid a government drive to consolidate the budget through several austerity packages.

In 2011, Spain missed its deficit target by a wide margin, which has since driven speculation that it may ultimately have to ask for a debt bailout like fellow eurozone members Greece, Ireland and Portugal.

hg/nk (AFP, dpa)