MADRID, Oct 31: Spain’s economy shrank 0.2 per cent in the third quarter, the central bank said on Friday, confirming forecasts it is flirting with recession as the country is pummelled by a property slump and the global financial crisis.

If confirmed by the National Statistics Institute (INE), it would be the first negative growth in gross domestic product since the second quarter of 1993.

“The marked deterioration of international financial markets since mid-September has exacerbated the prevailing uncertainty ... and has given rise to a further tightening of financing conditions,” the Bank of Spain said.

“Under these circumstances, the estimates made ... suggest that the year-on-year growth rate of GDP in the third quarter declined by 0.9 percentage points to 0.9 per cent, a figure representing a slightly negative quarter-on-quarter rate of 0.2 per cent.”The central bank’s figure was more than that forecast by the government, which last month predicted third-quarter economic growth of between 0.1 per cent and minus 0.1 per cent.

The Spanish economy, the fifth-biggest in the European Union, expanded by 3.7 per cent last year.

But growth began to slow as higher interest rates and oversupply put an end to a decade-long property boom. The global financial crisis has worsened the situation.

“Under these circumstances, the external environment of the Spanish economy in recent months has continued to weaken and has been subject to significant financial turbulence,” the bank said.

“Against this backdrop, financing conditions for Spanish households and firms became tighter as a result of further increases in the cost of funds and tighter bank lending standards. In addition, the fall in stock prices, along with the moderate decline in property prices ... adversely affected household wealth.” The Bank of Spain’s forecast bears out widespread expectations that the once fast-growing economy is now flirting with recession, defined as two quarters running of contracting output.

Output expanded 0.1 per cent in the second quarter from 0.3 per cent in the previous three months amid weakened domestic consumption, according to the INE, which will publish provisional growth figures for the third quarter on Nov 13.—AFP