A record drop in retail sales added to Spain's economic woes as the Government struggled to increase confidence in the crippled banking industry and investors remained wary of the country's ability to manage its debt.
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 said on Tuesday.
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. The Government has predicted a 1.7 per cent contraction for the whole of 2012.
The conservative Government has introduced harsh austerity measures, including spending cuts on health and education, in an attempt to control the level of its debt relative to the size of its economy. It 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 a concern that Spain's Government will not be able to find the funds to prop up the sector and keep its economy afloat.
The interest rate, or yield, on Spanish 10-year-bonds hit on Tuesday to 6.41 per cent - a sign that investors are turning away from Spanish debt.
Meanwhile, the spread between Spanish bonds and safe haven German bunds remained at 5.04 percentage points. The IBEX stock index was down a further 1.5 per cent by late afternoon in Madrid.