Economy set to fall short of growth target

SPAIN'S economy grew at its lowest rate for nine years in 2002 and looks set to record only a modest acceleration this year, falling short of the government's growth target. The Spanish economy grew by just 2.0 percent in 2002, its lowest rate since 1993 and below the 2.2 percent target, statistics institute INE said yesterday. The economy's performance in 2002 was dull compared with 2.7 percent growth in 2001 and four years of at least four percent growth before that, but the Economy Ministry said it was satisfied with the result given the international slowdown and uncertainty about war in Iraq. Gross domestic product (GDP) rose 2.1 percent year-on-year in the fourth quarter alone, up from 1.8 percent in the third quarter, and Economy Secretary Luis de Guindos said he was confident the economy had touched bottom. “The government is not changing its growth forecasts,” he said, asked about the 3.0 percent growth target for this year. The latest International Monetary Fund (IMF) report on Spain published yesterday predicted growth of 2.4 percent this year, down from 2.5 percent estimated in the fund's previous report in December. The report, written after a routine visit to Spain by an IMF team, said Spain was comparatively well placed to weather current weakness in the world economy and to register another year of growth above the euro zone average. Three economists said their forecasts were for 2.5 percent growth at best and much depended on companies investing more, which in turn would be influenced by their concern about the impact of a war in Iraq. “The outlook is coloured by what happens with the war, particularly in terms of energy prices and international trade flows,” said Eric Bergasa of Analistas Financieros Internacionales. “Investment in capital goods will determine when the economy takes off again,” he added. Seasonally-adjusted quarter-on-quarter growth was 0.3 percent from 0.8 percent in the previous quarter, INE said. But De Guindos noted investment was less negative in the fourth quarter than the third, and exports accelerated. “The economy practically touched bottom in the third quarter of 2002,” he said. Gross capital formation, which measures investment across the economy, rose 2.5 percent year-on-year in the fourth quarter from 1.6 percent in the third. Within that, capital goods spending dropped 0.8 percent after a drop of 4.4 percent and construction investment slowed its growth to 4.6 percent from 5.0 percent. Low interest rates are still fuelling a house-building boom in Spain, which traditionally has one of the highest home-ownership rates in Europe. Failure to meet its targets aside, the Spanish government took comfort in its performance alongside bigger euro zone partners like Germany, which registered zero growth in the fourth quarter. “The economy has maintained a growth floor of two percent in a difficult year... that merits a positive evaluation,” De Guindos said. He said initial indicators for 2003 pointed to the acceleration continuing, but that the government would look again at its forecasts in a few months' time.