Spain could soon face its first economic contraction in 15 years, the country's economy minister said on Tuesday as the latest statistics showed falling house prices, cuts in car production and a soaring budget deficit.
Spain's government has long ruled out negative growth.
But Economy Minister Pedro Solbes told Spain's Antena 3 television channel: "In the next two quarters growth will be around 0.1 percent to negative 0.1 percent, and of course, this doesn't change things very much."
He was speaking just before official data showed Spain's budget deficit surged to 14.6 billion euros in the eight months to August as the government doled out tax cuts and cheap credit to slow the economy's slide into recession.
Spain was the only one of the euro zone's four biggest economies not to contract in the second quarter after Prime Minister Jose Luis Rodriguez Zapatero drained the budget surplus to fund a 38 billion euro ($55 billion) economic stimulus plan.
The European Commission estimates the Spanish economy has contracted in the third quarter and will enter recession by year end.
Housing ministry data published on Tuesday showed home sales fell 31.5 percent in the second quarter of this year compared with the same period of 2008, underscoring the pain consumers are feeling after the bursting of a decade-old property boom that more than tripled the value of their homes.
Spain's car industry group ANFAC on Tuesday said vehicle production halved in August, that sales would fall 25 percent in 2008, and that a government plan to encourage sales was failing miserably as it was too complex for consumers to understand.
BUDGET PRESSURE
Labour Minister Celestino Corbacho on Tuesday stuck by an estimate unemployment would peak at an average 12.5 percent in 2009 before improving.
At 11 percent in July, Spanish unemployment was the highest in the euro zone and sent consumer confidence to a record low.
Spain is running its first central government deficit in three years and the central government alone is running a deficit equal to 1.31 percent of gross domestic product. The European Commission has warned Spain not to exceed an EU limit of 3 percent of GDP for its wider public sector.
In 2007, the government reported a budget surplus equal to 2.2 percent of GDP.
"We think the bulk of the shift in public accounts has now occurred," said Spanish Treasury Secretary Carlos Ocana in a press conference.
Spanish banks and financial institutions expect growth to fall to 1.4 percent in 2008 and 0.3 percent in 2009 from 3.7 percent last year, according to a consensus forecast by Spain's FUNCAS savings bank consultancy.
House building and sales previously generated around a fifth of growth in Spain, or around twice the euro zone average.
Spain is also highly dependent on foreign credit to drive growth and the country's main business lobby says companies will begin to collapse like dominoes unless the government provides bailout loans to counter a paralysis in bank lending.
Solbes rules out such A move and says a recession could have a cleansing effect on the economy after it became hooked on credit and construction.
The veteran minister says the budget deficit could rise as high as 2 percent of GDP in 2009 before the economy recovers towards potential growth near 3 percent in 2010.
Source:
Gudardian.co.uk