Country Report Spain November 2009

Summary

The continuing economic downturn and the need for fiscal austerity measures are likely to reduce support for the governing Spanish Socialist Workers' Party (PSOE).
Although the 2010 budget was recently passed, a risk remains of the government falling by 2011, given its uncertain position in parliament. The PSOE is seven seats short of a majority and is not in any formal alliance.
The economy is expected to begin to return to growth during 2010, yet GDP will show a contraction of 0.6% (after an estimated decline of 3.7% in 2009). Annual real GDP will return to positive growth in 2011, but of just 0.7%.
The general government budget deficit is forecast to worsen from an estimated 10.7% of GDP in 2009 to 11.7% in 2010. Despite a forecast austere budget for 2011, the deficit will fall only slightly in that year, to 10.4% 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 an inevitable 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.

In late October the PSOE won the parliamentary support of two right-of-centre regional parties, the Basque Nationalist Party (PNV) and the Canary Coalition (CC), to pass the 2010 budget in the lower house of parliament.
The approval of the budget should diminish concerns about the near-term stability of the government, and help the prime minister to focus political and media attention on Spain's presidency of the EU in the first half of 2010.
One of the negative consequences of Spain's growing debt level is the rising burden of interest rate charges: in 2010 debt servicing costs, as per the government's forecasts, are budgeted to rise by 33.3%, to €23.2bn.
The government announced that its car scrapping scheme, which provides for a public subsidy of €1,000 per car, will be extended until the end of 2010.
Consumers continue to retrench. The household savings rate rose to 24.3% of disposable income in the second quarter, the highest level in over 40 years, and up from 13.5% in the year-earlier period.
The restructuring of Spain's savings banking sector continues to move forward slowly, hindered by political rivalries and lingering suspicions about the underlying financial strength of the sector.

Source: Country Report

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