Both individuals and businesses pulled deposits from Spanish banks, as the country’s GDP continued to fall in the second quarter under austerity measures that have seen consumer spending dry up as additional austerity measures are set to go into effect.
Reuters reported Tuesday that private-sector deposits in Spanish banks were down nearly 5% at the end of July, while Bloomberg reported that its GDP fell 0.4% for Q2 and consumer spending dropped 1%. In Q1 the GDP fell 0.3%. More economic woes are in store, as austerity measures still to come will triple in effect by 2014.
Efforts to trim Spain’s budget will continue, according to a plan released by Prime Minister Mariano Rajoy in July. New budget cuts mandated by the European Union (EU) deficit limit of 3% of GDP will boost austerity measures to 15% of the country’s annual GDP by 2014, making it even harder on a country that already sees some of the highest unemployment in the eurozone.
“We’re not through the downturn and it will turn worse in the next quarters,” said Christian Schulz in the report. Schulz, an economist at Berenberg Bank in London, added, “There is a risk that things get out of control and Spain goes the way of Greece, which would discredit the austerity strategy and be negative for getting the eurozone crisis under control.”
According to the GDP report, investment in Spain fell 3% in Q2 from Q1. Exports of goods and services increased by 1.6%. Government spending fell 0.7% for the quarter, after falling 0.9% in the previous quarter. It was down 3% from a year ago. Trying to cut its deficit to 6.3% of GDP this year will be a tough act, since economists surveyed for a poll project the country’s GDP will contract by a median estimate of 1.6% in 2012 and 0.9% in 2013.