Spain Economy Contracts for First Time in 15 Years Amid Crisis

By Emma Ross-Thomas

Nov. 14 (Bloomberg) -- Spain's economy contracted for the first time in 15 years in the third quarter as the global financial crisis combined with the collapse of a domestic housing boom to push the economy toward a recession.

The economy shrank 0.2 percent from the previous quarter, when it expanded 0.1 percent, the National Statistics Institute said today in an e-mailed statement. That was in line with a median forecast from a Bloomberg News survey and an estimate from the Bank of Spain. From a year earlier, the economy grew 0.9 percent in the three months through September, after expanding 1.8 percent in the previous quarter.

The global credit crunch and resulting economic slowdown are exacerbating the fallout from the collapse of the housing market in Spain, where around a million new homes remain unsold. Unemployment rose to 11.3 percent in the third quarter, the highest in Europe, and another 193,000 people joined the ranks of the jobless in October.

``At the moment, we can't see where the recovery could come from,'' said Jesus Castillo, an economist at Natixis in Paris. ``The Spanish model has been based on a lot of job creation and sectors which are very labor-intensive. Now those sectors, mainly the construction sector, are falling and there's no sector coming to take over.''

This could be the start of a Spanish recession lasting at least two or three quarters, he said.

France's Economy

Most of Spain's European partners aren't faring any better. Germany, Europe's largest economy, contracted 0.5 percent in the third quarter, pushing Spain's second-biggest export market into the worst recession in at least 12 years, a report showed yesterday. The U.K. and Ireland are also in a recession and Italy will likely announce its second straight quarterly contraction in a report at 10 a.m. France's economy unexpectedly grew in the third quarter, avoiding a recession.

The Organization for Economic Cooperation and Development yesterday cut its forecast for global growth for a second time this year, predicting that the economy of its 30 member countries was already in a recession and would contract next year. The euro-area economy will expand 1.1 percent this year and shrink 0.5 percent in 2009, the OECD forecast.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net