MADRID, Spain — A record drop in retail sales added to Spain’s economic woes on Tuesday as the government struggled to boost market confidence in the crippled banking industry and investors remained doubtful of the country’s ability to get a grip on its debts amid a recession.
Retail sales dropped 9.8 per cent year-on-year in April as the country battled against its second recession in three years and a 24.4 per cent jobless rate that is expected to rise. The fall in sales was the 22nd straight monthly decline, and was more than double the 3.8 per cent year-on-year fall posted in March, the National Statistics Institute announced.
A gloomy Bank of Spain report heaped more bad news on the government. The central bank said it predicts the economy will keep shrinking at least until the end of June, after contracting 0.3 per cent in the first quarter, as Spain endures a double-dip recession. The government has predicted a 1.7 per cent contraction for the whole of 2012.
The interest rate, or yield, on Spanish 10-year-bonds rose to 6.45 per cent, moving closer to the 7 per cent seen as unsustainable. The IBEX stock index closed down 2.3 per cent, the steepest fall among Europe’s main markets.
Bank of Spain governor Miguel Fernandez Ordonez announced after markets closed that he is stepping down a month before his term ends in mid-July. The central bank said in a statement that Ordonez decided a new governor should be in place by June 11, which is the deadline for Spanish banks to provide the government with their recovery plans as part of an expected wholesale reform of the country’s financial system.
The conservative government, which came to power in December, has made little effort to hide its belief that Ordonez, who as governor has had oversight of the banking sector, is partly to blame for Spain’s economic mess.
The crisis has compelled the government to introduce unpopular austerity measures, including spending cuts on health and education, as it attempts to control the level of its debt relative to the size of its economy.
The government is also trying to reassure investors worried that the woes of the banking sector will force the country to require a bailout like those take by Greece, Ireland and Portugal. Spain’s lenders have a large amount of unpaid, so-called “toxic”, loans on their books following the collapse of the country’s real estate bubble in 2008.
There is concern that Spain’s government will not be able to find the funds to prop up the sector and keep its economy afloat.