Spain seen heading for recession as economy shrinks

Spain’s economy looks set to slip into recession after contracting for the first time in two years in the last quarter of 2011, highlighting the challenge for EU leaders as they meet to find ways to boost growth while cutting budgets.

The leaders are meeting in Brussels on Monday with the goal of helping Europe’s economy but they have to balance austerity with the need to help countries struggling with dismal economic performance.

The finances of neighboring Portugal faced fresh scrutiny by markets on Monday and Spain’s prime minister said this year’s official growth goal would be missed.

Gross domestic product in Spain shrank 0.3 percent in the fourth quarter from zero growth the previous quarter, preliminary data from the National Statistics Institute showed, in line with forecasts in a Reuters poll.

Spain has massive unemployment — around a third of the euro zone’s unemployed are Spanish — and a banking sector that has been hobbled by a collapsed property sector.

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