Country Report Spain March 2010

Outlook for 2010-11

• Continuing weakness in the economy and further fiscal austerity measures are likely to reduce popular support for the ruling Spanish Socialist Workers' Party (PSOE).
• There remains a risk of the government falling before the end of 2011 because of its uncertain position in the national parliament, but this risk has lessened in recent weeks.
• The economy is expected to experience some growth during 2010, yet average real GDP will show a contraction of 0.3% (after a decline of 3.6% in 2009). Annual real GDP will return to positive growth in 2011, but of just 0.8%.
• The general government budget deficit is forecast to worsen from 11.4% of GDP in 2009 to 11.6% in 2010. Despite a forecast austere budget for 2011, the deficit will fall only slightly in that year, to 9.7% of GDP.
• High and 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) may arise.
• There is a risk that the ongoing restructuring and consolidation in the savings banks sector could be insufficient and would require more government intervention, adding to public debt and decreasing credit flows.

Monthly review

• The PSOE government has been badly shaken by recent concerns about its ability to stabilise the public finances. The popularity of the prime minister is also at its lowest point since he came to power in 2004.
• A new gesture of ad-hoc support by the Catalan nationalist coalition, Convergence and Union (CiU), to the PSOE diminishes the risk of the government falling and an early general election (due in early 2012).
• Although recent events in the financial markets have partly forced its hand, the government had already begun to signal what appears to be an important shift in its priorities, and is beginning to urge much-needed economic reforms.
• In February the government presented a revised Stability Programme for 2009-13 on the public finances to the European Commission. The plan sets out details of an exit strategy, beginning this year.
• Real GDP continued to contract, by 0.1% between the third and fourth quarters of 2009.
• Investors remain uneasy about the degree to which the banks are taking property assets onto their balance sheets in order to avoid acknowledging the full scale of non-performing loans.

Source: Country Report

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Events in early February have shaken the PSOE
• The political scene: The PP finally outlines some policy guidelines
• Economic policy: The PSOE is now urging much-needed economic reforms
• Economic policy: Government presents revised Stability Programme 2009-13
• Economic policy: In focus
• Economic performance: Recession continues into the fourth quarter
• Economic performance: Consumer prices fall month on month in January
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure