Country Report Spain December 2008

Outlook for 2009-10

• The governing Spanish Socialist Workers' Party (PSOE) will continue to experience difficulties in passing legislation and could be politically hobbled for a short time at a crucial economic juncture.
• The flagging economy and ongoing debate on a new financing mechanism for regional governments will continue to distance the PSOE from the regional parties that it had expected to garner support from.
• The government will find it hard to recapture the same level of public support as it did in the general election, as it struggles to cope with a severe economic downturn that is expected to last at least up to the end of 2009.
• Increased spending and the significant economic downturn will lead to an estimated fiscal deficit of 3.3% of GDP in 2008, and down further to 7.1% in 2009 and 7.3% in 2010.
• GDP growth is expected to slow from 3.7% in 2007 to 1.3% in 2008, and to decline by 1.7% in 2009. Only a modest recovery will begin in 2010, and there is a possibility that this will be delayed.
• Rapidly rising unemployment means that tensions associated with a large influx of immigrants in recent years (nearly 4m in the last decade) are likely to intensify.

Monthly review

• Following an intense diplomatic campaign, the prime minister, Jose Luis Rodriguez Zapatero, secured a seat at the summit of the G20 group of leading industrialised nations in Washington in mid-November.
• The arrests of high-profile Euskadi Ta Askatasuna (ETA) members in mid-November and early December have inflicted a big blow to the already fragile morale of the Basque terrorist group.
• The government announced three separate packages of emergency economic measures in November, aimed at cushioning the impact of the economic downturn and credit squeeze on the Spanish economy.
• Lukoil, Russias largest publicly traded oil company, is looking to take a stake of nearly 30% in Spain's leading oil company, Repsol-YPF.
• According to the National Statistics Institute (INE), quarter-on-quarter real GDP fell by 0.2% in the third quarter. Leading indicators point to a further and more pronounced decline in the fourth quarter.
• Consumer price inflation has begun to decelerate markedly. Having peaked at an 11-year high of 5.3% (EU harmonised measure) in July, inflation slowed to 3.6% in October and an estimated 2.4% in November.

This report covers the following industry codes:
SIC Code: 49;15;60
NAICS Code: 22;23;52