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No end in sight to Spain's financial troubles


No end in sight to Spain's financial troubles


The Spanish economy slipped further into recession as austerity measures bit in the second quarter. The economy shrank at a faster pace than in the first quarter and was a whole percent down from a year earlier.

Spain is the eurozone’s fourth largest economy and saw higher inflation in July, with increased prices due to medical subisidy cuts and rising drug prices.

The government has worked hard to reduce the deficit, but this has hit consumers hard. This month, ministers said they expect the economy to contract into 2013, contradicting previous forecasts of a small rebound next year.

GDP figures showed that Spain’s economy shrank 0.4 percent from the first quarter. The International Monetary Fund warned that the national deficit would reach seven percent of GDP in 2012. Unemployment sits at twice the EU average, with over half of young people out of work.

Economists warn that Spain faces further employment losses, sharper house price falls, slack domestic consumption and continued fiscal belt-tightening. This would undermine the government’s efforts to ward off market insecurities about their ability to finance its debt and spark fears of a full bailout.

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