* Spain flash Q2 GDP -0.4 pct q/q, -1.0 pct y/y
* Flash EU harmonised prices +2.2 pct y/y in July
* Inflation rate beats forecasts on medicine price hikes
MADRID, July 30 Spain slid deeper into recession
in the second quarter as a tough new round of austerity to head
off the budget crisis that threatens the euro took effect both
on overall demand and the price consumers have to pay for goods.
The first official numbers on gross domestic product showed
the economy shrank 0.4 percent from the previous quarter after
contracting 0.3 percent in the first three months of the year.
The economy was 1.0 percent smaller than a year earlier.
Consumer prices according to both Spanish and EU methodology
rose 2.2 percent year-on-year, with the EU-harmonised increase
above forecasts being due to medicine price hikes put in place
by the government to save money and deflate the deficit.
Economists warned price hikes, and especially a 3-point rise
in value-added tax due to come into effect in September, would
distort consumer prices while the deepening recession reflected
slower domestic demand.
That will further weaken the government's efforts to get the
economy growing again - vital if it is to meet targets on
reducing its budget shortfall and halting a market-inspired
crisis in how it finances its debt.
"To properly follow Spain's economic reality, I would look
at domestic service inflation, which is where we'll see
stagnation and even deflationary pressures. Consumption remains
very weak," economist at Madrid-based broker Intermoney Jose
Carlos Diez said.
Spain slipped into the second recession since 2009 in the
first quarter and is expected to continue to shrink until well
into 2013 as consumers and businesses rein in spending and the
euro zone debt crisis saps investor confidence.
Fears over the health of Spain's economy as it fights to
reduce its public deficit has lifted funding costs to euro-era
highs in recent weeks leading many to think an application for a
full-bailout could soon become inevitable.
A full breakdown of the growth data will be published August
28, while the final price data will be available August 14.