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Spanish banking downgrades accompany recessionary GDP data

Investors learned today that Spain had slipped into recession, with economic activity falling 0.3% in the first three months of 2012, matching the contraction in the final quarter of 2011. Despite the scary headlines, a recession was almost certainly anticipated given the dire situation in the labour market and the aggressive budget cuts undertaken by the Spanish government. The data could have actually been considered a positive, given that forecasts by economists had anticipated a decline of 0.4%.

It did however come shortly after S&P’s downgraded the credit rating on 16 Spanish banks, including the country’s two biggest financial institutions Santander and BBVA. It came as the Financial Times reported over the weekend that the Spanish government and the banking system have been in talks to set up an asset management agency into which the bad debts on the banks balance sheets could be offloaded.

Data from the US later on in the day showed that personal spending rose 0.3% in March, with personal spending up 0.4% month on month, mixed in terms of expectations but never the less a positive indication as to the health of the US economy.

In general, despite opening relatively flat, global markets trended lower throughout the trading day, finishing near their lows. The FTSE 100 ended the day lower by 0.7% at 5738, similar to the loss on the DAX, although considerably better than the 1.5% plus falls seen on the French CAC and Spanish IBEX.

This was posted in Bdaily's Members' News section by James .