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Spain ETF Falls on Recession, Bank Downgrades

tlydon@globaltrend.com (Tom Lydon)

The iShares MSCI Spain Index Fund (EWP - News) slipped 2% on Monday as the ETF was hit by fresh economic fears and a Standard & Poor’s downgrade of several Spanish banks.

The fund sold off on news that Spain fell into recession in the first quarter for the second time in less than three years. The Spanish economy contracted 0.3% in the first quarter of 2012, MarketWatch reports.

Spain’s unemployment rate stood at 24% in the first quarter, the highest level since the early 1990s. Last week, S&P lowered its credit rating on the faltering European country by two notches. Spain is the Eurozone’s fourth-largest economy. [Spain, Europe ETFs Shrug Off Credit Downgrade]

On Monday, S&P downgraded 11 Spanish banks.

“The wheels are very clearly coming off,” Jefferies economist David Owen said in a Reuters report. “It wouldn’t surprise me to see a very significant decline in GDP both in the second and third quarters this year, and it’s still reasonably easy to envisage GDP to be down about 1.5% this year.”

“We fear that things are likely to get worse before they get better,” added Martin van Vliet, economist at ING Bank, in a separate report from Dow Jones Newswires. “The ongoing drag from real estate and the sheer scale of Spain’s planned fiscal adjustment mean that the recession will almost certainly deepen in the coming quarters, pushing unemployment to even more dramatic highs.”

The Spain ETF was down about 16% over the past three months heading into Monday’s trading.

Spain is in talks over a “bad bank” plan that would separate troubled real estate loans into one or more asset management companies to ease the burden on struggling lenders, the Financial Times reported.

iShares MSCI Spain Index Fund