Country Report Spain June 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 remains low but has risen, particularly given its precarious position since regional elections in March. It 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.
• 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.
• 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 during the second half of 2010, although there is a possibility that this will be delayed.
• 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 9.6% of GDP in 2009 and 10.2% of GDP in 2010, leading the accounts into a state of crisis.

Monthly review

• The PSOE suffered a relatively narrow, but nonetheless unambiguous defeat in the European Parliament elections on June 7th.
• The Popular Party's (PP) victory in the elections represented a hugely important personal triumph for its leader, Mariano Rajoy, and should finally put to rest ongoing speculation about his future.
• The minister of economics, Elena Salgado, is willing to contemplate tax changes in order to reduce the fiscal burden on labour, but only on condition that other taxes are raised so that the public finances are not harmed.
• The government is expected to create a new entity, the Fund for Bank Restructuring and Organisation, to oversee the administration of failed banks, but this has yet to be finalised.
• Official figures from the National Statistics Institute (INE) show that real GDP contracted by a seasonally adjusted 1.9% quarter on quarter in the first quarter of 2009, following a contraction of 1% in the fourth quarter of 2008.
• There has been debate on whether the economic recession peaked in the first quarter of 2009. Most indicators suggest that the rate of economic decline is moderating, but there is no sign that GDP might be turning positive.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;60;70;49;20;47;37;65
NAICS Code: 212;52;72;22;11;311;48;336;53