THE Spanish economy is falling deeper into recession and depositors are pulling their money out of the banks.
The recession grew stronger in the second quarter of the year, new figures show. It is expected to further worsen as austerity measures, introduced in response to the eurozone debt crisis, cut in to the demand for goods and services.
A rush by consumers and firms to withdraw their money from Spanish banks intensified in July, with private sector deposits dropping almost 5%, to €1.5 trillion.
Analysts believe it is inevitable Spain will soon have to call for a European rescue package to help bring its debt costs down as austerity measures designed to slash the public deficit push the economy deeper into recession.
Prime Minister Mariano Rajoy met European Council President Herman Van Rompuy in Madrid yesterday – a week before the European Central Bank discusses new measures to help debt costs in European nations hardest-hit by the crisis.
The ECB meeting on September 6 coincides with a visit by German Chancellor Angela Merkel to the Spanish capital and a key long-term bond auction.
Economists said the outlook could test Spain's ability to slash its deficit this year to 6.3% from 8.9% in 2011.
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