Spain economy halts in Q3, borrowing rate edges up

AP News
Posted: Nov 16, 2011 7:52 AM
Spain economy halts in Q3, borrowing rate edges up

Spain's economy stagnated in the third quarter of the year following two quarters of modest growth, the National Statistics Institute said Wednesday.

The official figure, confirming a preliminary estimate from the Bank of Spain, came four days ahead of a general election that the opposition conservative Popular Party is predicted to win by a landslide.

Spain's moribund economy, the eurozone's fourth-largest, and soaring borrowing costs have dominated the election campaign. In particular, there are worries the country, which has an unemployment rate of 21.5 percent, is getting dragged further into Europe's debt crisis mire.

The country's key borrowing rate in the markets eased Wednesday following a couple days of big gains. The yield on Spain's ten-year bond eased 0.12 percentage point to 6.18 percent but edged back up toward 6.30 percent by early afternoon. A rate of 7 percent is considered unsustainable in the long-term.

Spain's Treasury faces a tough test of market confidence Thursday when it auctions up to euro4 billion ($5.4 billion) in 10-year bonds on the primary market.

The Bank of Spain said there is still time to meet the government's goal of reducing its budget deficit to 6 percent of GDP in 2011, from 9.2 percent last year, but warned fresh austerity measures may be necessary.

Weak growth prospects have been cited by the three top international credit ratings agencies for their recent downgrades of Spain's sovereign debt.

The Popular Party said Tuesday that Spain had paid euro1.5 billion in interest on its debt over the past 15 days, canceling out what the Socialist government had saved on its deficit-reducing measure of freezing pensions over the past year.