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UPDATE 1-Spain says its economy is in recession

Published 12/23/2008, 06:03 AM
Updated 12/23/2008, 06:05 AM

(Adds economy ministry comment)

MADRID, Dec 23 (Reuters) - Spain's economic contraction deepened during the fourth quarter, data showed on Tuesday, putting it into recession for the first time in 15 years.

Spain's ISA activity indicator, which tracks gross domestic product (GDP), contracted 1.5 percent year-on-year between October and December, according to Economy Ministry data.

"The ISA shows the trend, and the trend is that the fall in fourth quarter GDP is going to be steeper than in the third," a ministry spokeswoman said.

That would mark Spain's second straight quarter of shrinking quarter-on-quarter growth, after GDP contracted 0.2 percent between July and September, and its first technical recession since 1993.

Spain releases preliminary fourth quarter GDP data on Feb. 12 and Economy Minister Pedro Solbes has said it is unlikely the economy will escape recession.

Analysts expect Spanish GDP to contract more than 1 percent in 2009, and possibly shrink again in 2010, hit by the collapse of a decade-long construction boom and as global market turmoil cuts off access to foreign financing.

Spanish unemployment is already the highest in the European Union at around 13 percent and economists fear it will rise above 15 percent next year and approach 20 percent in 2010.

The ministry says an International Monetary Fund estimate that GDP will fall at least 1 percent next year is reasonable, and the government will cut its current estimate of 1 percent growth in 2009 in mid-January.

Spain is expected to make a slow recovery as it tries to develop economic alternatives to residential construction and foreign financing that have collapsed after driving a decade of high growth, averaging 3.8 percent a year. (Reporting by Andrew Hay; Editing by Tony Austin)

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