Spain slips back into recession; European markets bleed

Spain is back in recession as the economy contracted 0.4 percent in the first quarter of the year, the central bank said Monday.

The figure published in a Bank of Spain monthly report followed a 0.3 percent decline in the fourth quarter. A technical recession is commonly defined as two consecutive quarters of economic contraction.

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The news of recession comes as no surprise, however - the new conservative government has said the economy is shrinking and forecasts it will contract 1.7 percent this year.

It has approved labor market and financial sector reforms, taken drastic deficit-reduction measures, and warned Spaniards to prepare for a rough patch as things will get worse before they better. The jobless rate is nearly 23 percent and expected to rise.

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The Bank of Spain's figure is a preliminary estimate. The official GDP figure from the National Statistics Institute comes out April 30.

In financial markets, the country remained under pressure on Monday - the yield, or interest rate, of 10-year Spanish bonds rose 4 basis points to 5.97 percent. The Ibex-35 stock index slumped 2.7 percent.

European markets are reacting to this news. German index Dax is down 2.5 percent. FTSE and CAC have also shed more than 1.5 percent each. Sensex has also lost 214 points following the slump in Europe.

AP