Spanish prime minister admits severity of slowdown

24 June 2008

MADRID – Prime Minister José Luis Rodríguez Zapatero on Monday acknowledged Spain was facing a much sharper economic downturn than originally thought and predicted activity for 2008 would grow by under two percent, below official forecasts.

Economy Minister Pedro Solbes has made mention of the word "crisis" to describe Spain’s rapidly slowing economy almost a taboo, but Zapatero Monday said the semantic debate was of "little practical" importance.

"The Spanish economy is undergoing a strong slowdown, almost at a halt," Zapatero said in a presentation on the state of the economy. "We see weak growth in the short term, but not a long period of stagnation," he added, predicting activity would start to pick up again in the second half of next year.

The government’s official GDP growth forecast for this year is 2.3 percent, a figure that was cut from 3.1 percent previously as evidence of the impact of a sharp slump in the housing market became clearer.

The revised estimate is still well above those of the International Monetary Fund and the Organisation for Economic Cooperation and Development, whose GDP forecasts for this year are 1.8 percent and 1.6 percent respectively.

The congressional spokesman on the economy for the opposition Popular Party, Cristóbal Montoro, said Monday that the government "is clearly overwhelmed" by the scope of the downturn, and suggested Spain was facing a possible "recession".   
   
Activity in the first quarter of this year slowed to its lowest pace in 13 years as the global credit crunch exacerbated the problems in the construction sector. Meanwhile, unemployment suffered its biggest jump at the start of this year in 15 years.

"In just a really short period of time, the Spanish economy has gone from growing at a good rate to an abrupt slowdown," Zapatero said.

"Both the current international situation, as well as the most recent domestic figures, point to the correction in the Spanish economy becoming intense in the next few months, with growth at the end of the year of under 2 percent."

Zapatero Monday announced a freeze next year of the salaries of high-ranking government officials as part of plans to limit growth in recurrent spending to 2 percent.

The administration will also cut the number of public sector jobs on offer in 2009 by 30 percent.

Airport privatisation
The Spanish leader also unveiled plans for a partial privatisation of the national airport operator AENA. Earlier this year, the government approved a EUR-18-billion economic-stimulus package.

After having built up a budget surplus in the past few years, and having cut government debt, Zapatero said: "We are in better conditions than at other times to overcome these problems and emerge stronger from this difficult period."

[El Pais / A. Sim / Expatica]