Spain sinks deeper in to recession in third quarter


Spain sank deeper into recession in the third quarter, as a brutal austerity program hammered public spending and weak domestic demand piles pressure on the country to seek international aid.

Gross domestic product contracted by 0.3 percent from the second quarter, when it shrank 0.4 percent, final data showed on Thursday.

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Spain's flagging economy, the fourth largest in the euro zone, is sharply in the market's focus on concerns the government cannot control its finances but remains reluctant to apply for European aid, which would trigger an ECB bond-buying program.

Spain urgently needs to seek a bailout, European Central Bank Governing Council member Luc Coene was quoted as saying in a Belgian newspaper on Thursday.

The government forecast for end-2012 is a 1.5 percent GDP contraction, though Economy Minister Luis de Guindos has said figures suggested the economy would perform better.

"It's true that Spain surprised on the upside because of strong exports which had a positive spillover on to investments. But, while it may provide some comfort for (Prime Minister Mariano) Rajoy, it doesn't change the challenges that Spain faces ahead." economist at Unicredit Tullia Bucco said.

Thursday's data showed GDP fell 1.6 percent year on year in the third quarter after contracting 1.4 percent in the second quarter, according to revised figures.

Prime Minister Rajoy's deep spending cuts and tax hikes along side multi-billion euro bank bailouts, have prompted widespread public outrage and fuelled country-wide protests.

Demonstrations in Spain and Portugal turned violent after millions took part in a mostly peaceful general strike on Wednesday in organized labor's biggest Europe-wide challenge to austerity policies since the debt crisis began three years ago.

Rajoy has introduced savings measures to end-2014 worth around 60 billion euro ($76.4 billion) to deflate a deficit which topped 9 percent of GDP in 2011 to below 3 percent by 2014.

On Wednesday, EU Economic and Monetary Affairs Commissioner Olli Rehn said Spain was on track for this year and next but needed to do more for 2014.

(Reporting By Paul Day; Editing by John Stonestreet)