Country Report Spain February 2009

Summary

The governing Spanish Socialist Workers' Party (PSOE) will find it hard to retain the same level of public support that it has at the time of the last general election, as it struggles to cope with a severe economic downturn.
The flagging economy has not brought closer co-operation between the minority PSOE government and the regional parties from which it had expected to garner support, and this is unlikely to change.
Rapidly rising unemployment means that social unrest cannot be ruled out and that tensions associated with a large influx of immigrants in recent years (over 4m in the last decade) are likely to intensify.
Economic policy will focus on stemming the recession, but there may also be a possible easing of resistance to foreign takeovers of national champions.
Increased spending and the significant economic downturn will lead to a fiscal deficit of 7.4% in 2009 and 7.9% in 2010, following an estimated deficit of 3.6% of GDP in 2008.
GDP is expected to contract by 2.9% in 2009 and 0.5% in 2010, down from estimated growth of 1.1% in 2008. Only a modest recovery will begin during the second half of 2010, and there is a possibility that this will be delayed.

The ranks of the opposition Popular Party (PP) are in a state of disarray, exacerbated by the eruption of an internal spying controversy in January.
In a region where residents are tired of constant political friction and radicalism, most political parties in the Basque Country are projecting a more moderate image in the run up to the March regional elections.
The government presented its new macroeconomic forecasts in mid-January as part of a revised Stability Programme for 2008-11, finally abandoning the implausible economic forecasts on which the 2009 budget was predicated.
The government's up-to-now relatively hands-off approach to the banking sector could change if operating conditions worsen markedly. It has stated that it no longer rules out the public recapitalisation of financial institutions.
Job market conditions continue to deteriorate at a dramatic pace. According to the main labour market survey, non-seasonally adjusted unemployment rose by almost 190,000 in January, the biggest monthly increase on record.
Seasonally adjusted industrial production fell by 17.2% year on year in November—the biggest drop in 16 years—and by 15% in December; while temporary plant stoppages saw car production fall by 35.6% in December.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52