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Spain sinks deeper into recession in first quarter

By Paul Day

MADRID (Reuters) - Spain's economy shrank for the seventh straight quarter from January to March, preliminary data showed on Tuesday, and the recession looks set to last into next year.

Acute joblessness and grim economic data from Spain and other euro zone countries have fueled a raging debate over whether Europe should abandon austerity policies that are still favored by regional powerhouse Germany.

Spain's Gross Domestic Product contracted 0.5 percent in the first three months of this year from the last quarter of 2012, according to preliminary data from the National Statistics Institute, dragged lower by sliding domestic demand.

The Spanish government slashed its economic forecasts for this year on Friday, bringing expectations closer to consensus, though did not announce any significant updates to its vital reform plan designed to restart the economy.

"We recognize the reforms of the government have been significant, but the problem is the starting position of the Spanish economy was much worse than any other European economies and adjusting in this environment is a lengthy process," analyst at Nomura Silvio Peruzzo said.

"We don't see Spain returning to growth until some time next year."

The economy shrank 2 percent on an annual basis in the first quarter, worse than the 1.9 percent registered a quarter earlier and the worst annual contraction since the start of the current recession in the last quarter of 2011.

MORE - http://finance.yahoo.com/news/spain-sinks-deeper-recession-first-080016071.html?l=1#