Spain's PM says bad economic times could drag on

MADRID
SPAIN faces adverse economic conditions that could last longer than expected, but the downturn should be followed by a strong recovery, Spain's prime minister said in an interview published on Sunday. “This adversity is proving tough, above all, because it came on very fast,” Jose Luis Rodriguez Zapatero told the media. “This bad situation will last longer or last less, but we are going to recover with strength, and social policies are not going to be cut back.” Zapatero said Spain's problems were part of a wider economic stagnation in euro zone countries following the global credit crisis and high raw material prices.

His Socialist government does not expect Spain's economy, the fourth largest in the euro zone, to contract and sees it continuing to outperform the wider currency bloc where growth shrank in the second quarter for the first time on record.

Zapatero sees 2010 growth near 3 percent, up from 1 percent in 2009, 1.6 percent this year and 3.7 percent last year. “The economy is the government's fundamental concern. But I am calm and optimistic because we have a strong country,” Zapatero said.
An increasing number of analysts say the Spanish economy began shrinking in the third quarter, will enter recession by year end, and risks years of stagnation due to high dependence on construction, credit and consumer spending.

Europe would feel the impact of a sharp slowdown after Spain drove as much economic growth as Germany or France last year and created over a third of European Union jobs between 2004 and 2007, according to the AFI consultancy.

Zapatero's optimism followed a bleak outlook from Britain's finance minister on Saturday, who said the UK downturn would likely be deeper and last longer than first feared.

The Spanish prime minister said Spain was stronger than in the past, supported by a workforce of over 20 million where one in three holds a technical qualification and where per-capita income has increased five fold in the past three decades. “Spain can face an adverse economic cycle, like the one we have, with greater ease,” Zapatero said.
Countering that view is Spanish data showing inflation among the highest in the euro zone and unemployment that was the highest in the currency bloc at 11 percent in July.

Many analysts see unemployment rising to around 15 percent or up to 3.5 million next year, as hundreds of thousands of construction, real estate and service sector workers are made redundant.

Spain's retail sector lost jobs in July for the first time since 1999 as consumer spending plummeted and sales fell for an eighth month running, the government reported on Friday.

The current account deficit meanwhile rose 15 percent in the first half of 2008 from a year earlier, due to high imports and foreign financing needs, according to Bank of Spain data.

The leader of Spain's conservative opposition Popular Party said Spain had a serious competitiveness problem and was not outperforming rival euro zone economies. “The president thinks we're better than others, something I also don't agree with,” Rajoy said in an interview. To tackle the crisis, the opposition plans to propose tax cuts for small and medium-sized companies and people with mortgages, as well as a cut in public spending, Rajoy added.

Zapatero vowed to keep up social spending after the central government's deficit doubled between June and July as he rolled out 10 billion euros in tax rebates and low cost credit to head off recession. “What bothers me are citizens that may suffer real difficulties. I will centre my attention on them,” he said.