Spain’s two-year economic slump showed signs of coming to an end in the second quarter, data showed on Tuesday, but weak domestic demand and looming fresh austerity measures mean a sustained recovery may still be far off.

The National Statistics Institute, known by its Spanish-language acronym INE, said the contraction in gross domestic product eased to 0.1 per cent from April to June from a quarter earlier when the economy shrank 0.5 per cent.

Following signs of some improvement in economic activity, including the first drop in unemployment in two years in the second quarter, Economy Minister Luis de Guindos has said the recession has come to an end.

However, economists are less convinced. “We’re not counting on a further improvement in the third quarter and are very sceptical of any statement that the recession in close to being over,” Ebrahim Reheari, an analyst at Citi in London, said.

“In an environment where there is more than 25 per cent unemployment, a slightly positive GDP figure does not mean the recession has ended.”

The second quarter improvement was largely due to temporary factors including an especially weak first quarter and strong trade data, which includes seasonal tourism. INE said yesterday shrinking domestic spending in the second quarter was partially offset by exports.

Spain’s high reliance on activity beyond its borders – exports were worth a third of economic activity in the first quarter, up from 23 per cent four years earlier – add increased uncertainty to the outlook as global recovery falters.

Spain’s economy slipped into recession in 2008 after a burst property bubble badly undermined the foundations of one of the country’s key pillars of growth – construction – sending unemployment to new record-highs and depressing business.

Since then, dire domestic demand has been further hit by tax hikes and spending cuts aimed at balancing the budget.

While the latest PMI surveys and encouraging unemployment data for the second quarter suggest Guindos’s optimism may be founded, earnings for the first half of the year posted by Spain’s biggest firms over the last few days offered a mixed picture.

Many indicators, including retails sales, due today, as well as electricity and gas consumption, show that activity is still struggling.

In addition, even though the emphasis in Europe has shifted towards growth and away from austerity in recent months, Spain’s high fiscal imbalances mean more budget cuts are likely to be made, potentially hitting the tentative signs of recovery.

Meanwhile, national consumer prices in July rose 1.8 per cent, down from 2.1 per cent a month earlier, INE said yesterday.