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Spanish economy 'back in recession'

Spain's economy has contracted 0.4% in the first quarter of the year and the country is now in a technical recession, latest figures show.

The drop, published in a Bank of Spain report, follows a 0.3% quarterly decline in the fourth quarter.

A technical recession is commonly defined as two consecutive quarters of economic contraction.

The Bank of Spain figure comes as no surprise, however. The government has said the economy is shrinking and forecasts it will contract 1.7% this year. Prime minister Mariano Rajoy has already pushed through a series of labour market and financial sector reforms, taken drastic deficit-reduction measures, and warned that things will get worse before they get better. The jobless rate is nearly 23% and expected to rise.

In financial markets, the country remained under pressure - the yield, or interest rate, of 10-year Spanish bonds rose to 5.97%. The Ibex-35 stock index slumped 2.8%.

The central bank said domestic demand dropped again, but foreign demand for Spanish goods rose, but at a slower pace than usual. For the first time in seven quarters, GDP compared to the same figure a year ago fell - by 0.5%.

Spain is struggling after the collapse in 2008 of a property bubble that had fuelled nearly a decade of solid and sometimes robust growth.

It was only in 2010 that it emerged from nearly two years of recession, and now it is back in another one.

Investors are concerned that the government might not be able to resurrect the economy and generate growth and jobs while drawing money out with austerity measures such as health care and education spending cuts and increases in income, property and corporate taxes.

These worries are pushing up Spanish borrowing costs at debt auctions and intensifying fears this will follow Greece, Ireland and Portugal and seek a bailout.

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