Weaker consumer spending and a crumbling construction sector sent Spanish growth to a 15-year low in the second quarter and analysts said the economy was now contracting.

The euro zone’s fourth largest economy grew by 0.1 percent on the quarter in the April-June period after expanding 0.3 percent in the first three months of the year, the National Statistics Institute confirmed on Wednesday..

This is the lowest level since the third quarter of 1993 when quarter-on-quarter growth was flat.

Compared with the previous year, the economy expanded 1.8 percent, its lowest rate in 13 years and down from a revised 2.6 percent in the first quarter, INE reported, confirming a preliminary estimate published on Aug 14.

Spain was the only one of the euro zone’s four big economies not to contract during the second quarter but economists said that trend was over.

“I see negative growth in the third, fourth quarters,” said Carlos Maravall at the AFI consultancy, adding the economy would slow further in 2009 before a mild recovery in the second half.

Spain has suffered multiple economic shocks this year as the end of a housing boom coincided with the global liquidity squeeze and soaring oil prices.

Worst hit is the construction sector which saw investment fall 2.4 percent in the second quarter from a year earlier, marking its first decline in 12 years after chronic overbuilding, INE data showed.

Household spending, which drives two thirds of the Spanish economy, plummeted to 1.2 percent growth from 2.2 percent in the first quarter and 4.1 percent during the year-earlier period.

“The year-on-year contraction in the construction sector is the first we’ve seen in many years and confirms the correction is gathering pace,” said Merrill Lynch economist Daniel Antonucci.

Supporting results was Spain’s external account which normally cuts in to growth but in the second quarter added 0.3 of a percentage point due to falling imports.

Spain’s Socialist government has launched a 40 billion euro economic stimulus package and expects measures ranging from tax cuts to low cost credit to avert a recession.

Corporate Spain is braced for tough times after house prices fell for the first time in a decade between April and June and unemployment rose to the highest level in the euro zone.

Builders and hotel firms like Abertis <ABE.MC> and Sol Melia <SOL.MC> have cut profit forecasts amid estimates Spanish unemployment will reach 15 percent in 2009 as the default rate triples and Spain suffers its first recession since 1993.

Some analysts fear banks could be next to issue profit warnings if bankruptcies continue to soar among property developers that hold around a fifth of all debt in Spain.

Source: http://www.afxnews.com

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