Recession endures in Spain

Financial market pressure on Spain is mounting, the Bank of Spain said in its monthly report, as Europe's fourth biggest economy was set to experience yet another quarter of economic contraction.

"Available data for the third quarter of the year suggests output continued to fall at a significant pace, and financial tension remained at a high level," Spain's central bank said in its report, released Wednesday.

The bank didn't specify how steep the decline would actually turn out to be. But it made clear that Spain would remain stuck in a recession, which began in the last quarter of 2011 and saw output continue to shrink by 0.3 percent and 0.4 percent respectively in the first two quarters of 2012.

For 2012, the Spanish government is expecting the economy to shrink by 1.5 percent, while the International Monetary Fund (IMF) predicts an even sharper decline of 1.7 percent.

The bank's report added more gloom to the country's economic situation, sending Spain's IBEX stock market index down a staggering three percent. In addition, Spain's borrowing costs soared above six percent for its benchmark 10-year government bonds - a threshold seen as unsustainable for refinancing the debt-laden eurozone country.

In the meantime, Prime Minister Mariano Rajoy indicated he might seek an international bailout if debt financing costs remained "too high for too long."

Rajoy spoke as protesters clashed with police in the Spanish capital, during anti-austerity demonstrations on Wednesday. Madrid needs to plug budget shortfalls totaling about 60 billion euros ($77 billion) over the next two years, and has already sought rescue loans of up to 100 billion euros to bail out its troubled banking sector.

uhe/jlw (AFP, Reuters)