Country Report Spain July 2009

Outlook for 2009-10

• Popular disgruntlement with the governing Spanish Socialist Workers' Party (PSOE) is likely to grow, and the government will find it hard to retain the same level of public support that it had at the time of the last general election.
• The risk of the government falling has risen, given its precarious position in the national parliament as a result of regional elections in March. The PSOE is seven seats short of an absolute majority and not in any formal alliance.
• Economic policy will focus on stemming the recession, but there may also be a possible easing of resistance to foreign takeovers of national champions.
• High and still-rising unemployment means that social unrest cannot be ruled out and that tensions associated with a large influx of immigrants in recent years (over 5m in the last decade) are likely to intensify.
• GDP is expected to contract by 4.2% in 2009 and by 1% in 2010, down from growth of 1.2% in 2008. A modest recovery is forecast towards the end of 2010.
• Increased spending and falling tax revenue will lead to a rapid rise in the fiscal deficit, from an estimated 3.8% of GDP in 2008 to almost 12% of GDP in 2010. This will push the PSOE to seek austerity measures and tax hikes.

Monthly review

• Short of a working majority, the PSOE is finding it hard to pass legislation. Its next major challenge will be to oversee the safe passage of the 2010 budget. Failure to pass the budget would trigger calls for an early general election.
• The government has made tentative plans to begin to restore the weak public finances, approving an initial ceiling for central government spending in 2010 and indicating impending tax increases.
• The government's latest macroeconomic and budget projections mark an exercise in greater realism on its part, but the projections are predicated upon an overoptimistic view of economic recovery.
• In late June the government finally approved the creation of a new public entity, the Fund for Ordered Bank Restructuring (FROB), to provide support to troubled but viable banks and to oversee the administration of failed banks.
• The freefall in economic activity appears to be slowing, although it is still difficult to discern any conclusive signs of "green shoots" of recovery.
• Consumer, industrial and construction confidence indicators have risen from their lows in early 2009, but this improvement in sentiment is reflected only timidly in most activity indicators.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336