Spain's GDP contracts as austerity hits spending

By Christopher Bjork

--Government, households buy less goods, services
--Business investment falls most in two years
--Exports are softening
MADRID
Spain's government, households and companies reined in spending in the first three months of the year, leading the euro zone's fourth-biggest economy to contract 0.3% from the fourth quarter
Exports softened after several quarters of strong growth, reflecting the wider slowdown in Europe
Exports had been a bright spot throughout the country's drawn-out economic crisis
The conservative government of Prime Minister Mariano Rajoy has slashed spending and raised taxes in a drive to bring Spain's budget gap in line with European Union targets
With salaries falling and unemployment on the rise, households are feeling the pinch
On an annual basis, gross domestic product shrank 0.4%, final data from the National Statistics Institute showed Thursday
In the fourth quarter, GDP fell 0.3% on a quarterly basis, but grew 0.3% on an annual basis
The data, in line with a preliminary reading on April 30, confirm that Spain's austerity measures are weighing on the economy
They provide a stark measure of the challenge of cutting the deficit in the midst of a deep economic downturn
Government spending on goods and services fell 13% on the year, while administrative outlays were down 5.2%, the INE said
Already in the fourth quarter they had fallen 3.6% on the year
Household consumption fell 0.6% on the year
Gross fixed capital formation--a gauge of business investment--contracted 8.2% on the year, the fastest decline in two years
Exports grew at the slowest pace in at least two years, up 2.2% on the year in the first quarter
Imports also shrank, contracting 7.2% on the year in the quarter