Not surprisingly, Spain said their economy is officially back in a recession as Q1 GDP contracted .3% q/o/q for a 2nd straight quarter. It was though a touch better than expected and bonds and CDS are unchanged but stocks are lower. Spain’s recession following the UK is of course bringing front and center the debate over austerity and whether it’s the right response to what is ailing the over indebted, shrinking economies. All austerity though is not created equal and as such is not either good or bad in the absolute as austerity takes on many forms. The irony is clear though that too much spending relative to revenue and the coincident rise in debt is why many are in this mess to begin with and plans to reverse that have some in a tizzy. As night follows day, recessions are supposed to follow expansions in order to ring out the excess which then leads to the next expansion. Politics and the desire for only pleasure and no pain however always seems to get in the way of the economic cycle. Euro zone CPI in April at 2.6% was down from 2.7% in March but above expectations of 2.5% and is the 17th month in a row above the ECB target rate of 2.0%. In the US, the most important economic week of the month is ahead highlighted by the ISM, ISM services, vehicle and retail numbers and the jobs report.
Not surprisingly, Spain in a recession. Austerity!?
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