Final Rating Agency, Moody, cuts Spain's Debt rating from AAA to Aa1
MADRID (AP)– Spain's hurting economy got hit again Thursday with yet another downgrade of its government debt by a major ratings agency, meaning the nation's borrowing costs will likely rise as it struggles to cut its deficit amid gloomy economic recovery prospects.
Moody's Investors Service lowered the rating from Aaa to Aa1, with a stable outlook, and the announcement dragged down stock prices from Asia to Europe.
The downgrade came a day after tens of thousands of Spanish workers staged a national protest against government austerity policies, clashing with authorities, canceling international and domestic flights and disrupting public transportation in the largest cities. Spain is struggling to emerge from a two-year recession after its construction and real estate sector collapsed, putting an end to a decade-long boom. Experts regard the country as one of the eurozone's most fiscally troubled members, along with Greece, Ireland and Portugal.
Unemployment stands at 20 percent, many businesses are struggling to survive and the London-based Moody's painted a grim picture of the nation's immediate economic future. "One of the key drivers for Moody's decision to downgrade Spain's rating to Aa1 is its weak growth prospects and the challenge that this presents for fiscal consolidation," said Kathrin Muehlbronner, a Moody's vice president and lead analyst for Spain.
Spain's economy will likely expand about 1 percent annually in coming years, lagging behind growth rates for nations like Britain, France and Germany, she said. The country also faces key challenges in trying to boost low productivity and international competitiveness, Moody's said.
The other two major rating agencies, Standard & Poor's and Fitch, downgraded Spanish debt in late April and late May respectively.
Moody's also said Spain faces worsening debt affordability, or interest payments as a share of revenues, and significant borrowing requirements — making it vulnerable to market volatility. Spain's Socialist government has enacted changes that make it easier and cheaper for companies to lay people off, and recent signs of wage restraint in the private and public sectors are positive signs, Moody's said.
But Moody's noted that the cost of letting workers go is still higher that the European Union average. Alejandro Varela, an analyst at Renta4 brokerage fund managers in Madrid, said investors were expecting the decision and that it will add pressure on the government to retool Spain's economy. "Moody's couldn't maintain the triple A rating with the Spanish economy in the situation it's in. It doesn't make sense," Varela said.
Spain unveils ‘austere’ 2011 budget
The Spanish finance minister, Elena Salgado, unveiled what she described as an austere 2011 budget that will increase income tax for the rich and cut ministerial expenditure by an “extraordinarily large” 16 per cent.
Spain’s Socialist government says it is determined to stick to its deficit reduction plans. Ministers want to distinguish their country from more vulnerable economies such as Greece, Ireland and Portugal on the periphery of the eurozone.
“This is the most austere budget of recent years,” Ms Salgado said on Friday, after the cabinet approved the budget proposals to be presented to parliament in further detail next week.
Ms Salgado announced a rise in the top marginal rate of personal income tax, currently 43 per cent. That will increase by one percentage point for annual incomes over €120,000 ($162,000) and by two points for those above €175,000. The cabinet also abolished a special capital gains tax exemption for “Sicavs”, the investment funds used by wealthy Spanish families to manage their assets.
Such measures are unlikely to raise large sums of money – Ms Salgado estimated the extra revenue from the income tax rises at €170m-€200m – but are designed to appeal to left-wing Spaniards disenchanted with the government of José Luis Rodríguez Zapatero, the prime minister. Trade unions have called a general strike for Wednesday to protest against austerity.
Although Spain has stuck to its deficit targets and been rewarded by the bond markets with lower borrowing rates, economists and investors regard the official forecasts for economic growth – including a prediction of 1.3 per cent growth next year – as over-optimistic. They say a growth shortfall could threaten revenues and thereby undermine the credibility of the budget.
“It’s too early to declare victory,” said Emilio Ontiveros, chairman of Analistas Financieros Internacionales, a research group. “The markets are very worried about the political capacity of governments to clean up the public finances, and there is concern about the ability of the Spanish economy to grow and create revenues.”
Ms Salgado announced a small downward revision of the 2009 budget deficit, putting it at 11.1 per cent instead of 11.2 per cent of gross domestic product, and said everything would be subordinated to Spain’s promise to cut its deficit to 9.3 per cent of GDP this year and 6 per cent in 2011.
Spanish general strike set to disrupt flights
A general strike in Spain is likely to cause travel disruption to and from the country this week.
Spanish trade unions are to stage protests against the government’s austerity cuts and labour reforms on Wednesday. They are reported to have agreed with the government to provide a minimum of between 20% and 40% of international flights.
The protest will leave at least 20% of European flights and 40% of other international flights unaffected. At least one quarter of train services would run, rising to 30% at rush hour. Under Spanish law, workers in certain sectors must provide a minimum level of services and the unions must agree with the government on what minimum levels should be.
The scale of transport stoppages is likely to be a key factor in the level of disruption caused by the strike as they determine how many non-strikers can get to their place of work.
Significant disruption in large cities is expected.
Bund futures mark session low after strong Spanish auction
LONDON, Sept 16 (Reuters) - German government bond futures marked a session low on Thursday in the wake of a very strong Spanish bond sale which faded the allure of safe haven trades. The December Bund future FGBLc1 was down 49 ticks at a session low of 129.62 by 0854 GMT. Before the sale of 3.99 billion euros of 10- and 30-year Spanish Bonds the Bund contract was at 129.81.
"These were very strong results for Spanish supply. And all the more so given that both bonds performed strongly into the auction too. They helped to reduce interest in safe haven Bunds," Huw Worthington, a bond strategist at Barclays Capital in London said.
Spanish Lawmakers Give Final Approval to Labour Overhaul
MADRID (Dow Jones)--Spanish lawmakers have given their final approval, without making major changes, to a long-awaited overhaul of labour laws expected to help cut unemployment and spur economic growth.
The parliamentary vote came at the end of a two-month period allowing lawmakers to make changes to legislation approved in June. The reform aims to encourage hiring by reducing the Spain's high cost of dismissal and giving companies more flexibility to reduce working hours and staff levels in economic downturns.
The legislation removes most restrictions on the use of indefinite contracts with unfair dismissal costs equal to 33 days of salary per year worked. The standard indefinite contract currently in use has a cost of dismissal equal to 45 days.
Furthermore, it makes it easier for workers to be dismissed on a "fair" basis, which has a 20-day cost of dismissal. The reform has come at high political cost for Socialist Prime Minister Jose Luis Rodriguez Zapatero who has seen his standing fall in opinion polls and who faces a general strike called by unions on Sep. 29.
Zapatero's government, however, has come under intense international pressure to take measures to reduce a double-digit budget deficit and spur economic growth.
Spain's 20% unemployment rate is twice the 10% average for the wider euro zone.
Claims for unemployment benefits rise in August by about 61,000
Spain says claims for unemployment benefits rose in August by about 61,000, ending four months of decline as temporary summer work contracts began to expire.
The Labour Ministry said Thursday the number of people claiming benefits now stands at 3,969,661. The overall jobless rate stands at about 20 percent as Spain struggles to crawl out of nearly two years of recession.
Finance Minister Elena Salgado said Thursday's figure was "not bad" because claims traditionally rise in August as temporary workers in the tourism industry see their contracts run out. She noted that in 2007, when the economy was red hot, claims still rose by 58,000.
Over the past 12 months the number of people filing for benefits has risen 9.3 percent.
31st August 2010
Spain leads way in annual Eurozone construction output
Seasonally adjusted production in the construction sector increased by 2.7pc in the euro area and by 3.5pc in the wider European Union in June 2010, compared with the previous month, according to first estimates released today by Eurostat. In May 2010, production fell by 0.7pc and 0.1pc respectively. Compared with June 2009, output in the sector this June was up by 3.1pc in the euro area and by 5.4pc in the 27 country EU.
Monthly : Among the Member States for which details are available for June 2010, construction output rose in eight and fell in six. The highest increases were seen in Romania (16.5pc), Spain (7.2pc) and Poland (4.5pc), while the largest declines were in Hungary (-2.3pc), the Netherlands (-1.8pc) and Slovenia (-1.6pc). Figures are not yet available for Ireland.
Building construction gained 3.3pc in the euro area and 5.7pc in the EU27, after -0.3pc and -0.5pc respectively in May. Civil engineering increased by 1.2pc in the euro area and by 2.0pc in the EU27, after -2.9pc and -1.9pc respectively in the previous month.
Annual comparison
On an annual basis, construction output rose in five and fell in nine of the countries where information is available. The highest increases were registered in Spain (18.6pc), the United Kingdom (13.6pc) and Poland (10.2pc), while the largest decreases were experienced in Hungary (-19.6pc), Bulgaria (-17.5pc) and Slovenia (-16.9pc).
Building construction gained 6.4pc in the euro area and 7.5pc in the EU27, after -5.6pc and -2.3pc respectively in May. Civil engineering dropped by 6.7pc in the euro area and by 0.6pc in the EU27, after -9.2pc and -3.4pc respectively in the previous month.
Spain's GDP up 0.2 pct in second quarter
Spain confirmed its slight recovery from recession on Thursday with 0.2 percent growth in the second quarter, final official data showed.
The figure, which confirmed provisional data issued by the National Statistics Institute (INE) on August 13, follows growth of 0.1 percent in the first quarter, when Spain emerged from recession.
On a year-on-year basis, Spanish Gross Domestic Product shrank 0.1 percent, a figure slightly better than the INE's provisional estimate of 0.2 percent. The second quarter upturn is substantially less than in Germany and France, where growth for the April-to-June period was 2.2 percent and 0.6 percent respectively.
Spain's government predicts the economy will contract 0.3 percent in 2010 and then expand 1.3 percent in 2011. Other organisations are far more pessimistic, raising doubts over the government's ability to rein in its massive public deficit.
The Bank of Spain expects a contraction of 0.4 percent this year before a return to growth of 0.8 percent next year while the International Monetary Fund has revised its 2011 growth forecast down from 0.9 percent to 0.6 percent.
Spain entered its worst recession in decades at the end of 2008 as the global financial meltdown compounded a crisis in the once-booming property market and then returned to growth in the first quarter of this year with a gain of just 0.1 percent. The INE on Wednesday said the economy contracted 3.7 percent in 2009, slightly more than its initial estimate of 3.6 percent issued in February.
Spain's Economy Shrank 3.7% in 2009, More Than Initial Estimate
Aug. 25 (Bloomberg) -- Spain's economy contracted by more than initially estimated last year, the National Statistics Institute said.
Economic output declined 3.7 percent compared with an earlier assessment of 3.6 percent, the institute said in an e- mailed press release. Exports grew less than previously estimated, the release said.
INE said there was no revision to annual GDP data for 2006- 2008 after its review.
24th August 2010
Spain's caja overhaul will spark further bank mergers
The merger of two Galician cajas, Caixa Galicia and Caixanova, could create too strong a competitor for Pastor on its home turf and force it to seek partners. Spain's caja overhaul could spark further bank mergers
Spain's banking sector is headed for more consolidation as an overhaul of savings banks toughens competition, forcing smaller commercial banks into mergers to defend their flagging business and return to profitability. Smaller banks will also be seeking increased scale as they fight to regain access to money markets for funding, seen as crucial to unblocking seized-up domestic lending and help revive Spain's recession-hit economy.
Stress tests of the health of Europe's banks has boosted market confidence in Spain's top names Santander and BBVA, which have both successfully sold bonds, but many smaller players remain cut off from market funding.
"The new challenge for smaller commercial banks is how to defend their territory against some of the revamped cajas, many of which will be healthier and more aggressively competitive," said BPI bank analyst Carlos Peixoto.
Mid-sized listed bank Sabadell and smaller rival Guipuzcoano have pooled resources in a deal valued at some 730 million euros (600.8 million pounds). Pastor bank , from the region of Galicia, declined an invitation to join. But the merger of two Galician cajas, Caixa Galicia and Caixanova, could create too strong a competitor for Pastor on its home turf and force it to seek partners, Peixoto said.
In the past, the market was roughly divided up between the two top-tier banks, some small-to-mid-size banks and 45 cajas, which account for around 50 percent of the financial system. The cajas have an extensive branch network but got in over their heads through over-lending during a decade-long property boom. Through mergers and takeovers the savings banks branches have shrunk by about two-thirds at a cost of around 11.2 billion euros from the government-backed restructuring fund (FROB). Cajas that got public funding for mergers are expected to close between 10 percent and 30 percent of branches and cut staff by 11 percent to 27 percent.
"In the end, the consolidation is about dividing up a market between fewer, more efficient institutions to ensure a return to pre-financial crisis profitability," said Santiago Carbo Valverde, professor at the University of Granada.
One formidable new player on the scene is the tie-up between Caja Madrid, formerly Spain's second biggest savings bank, and six smaller regional cajas to create a deposit leader, ahead of Santander , BBVA and former top savings bank La Caixa, with a market share of around 12 percent.
CAJAS GO PRIVATE
Apart from downsizing and weeding out weaker players, the cajas shake-up also changed their legal status, which will be a catalyst for further consolidation. A law passed in July allows the cajas to offer up to 50 percent of capital to private investors, a move designed to curb powerful political influence over their boards and to bring them into line with listed rivals.
"There will be a second wave of mergers when the cajas open up to investors. Spanish as well as foreign banks can buy stakes, which was not allowed before," a banking source said. The law also allows the cajas to create a new bank to manage their banking business, separating this from their charitable works, or to become a foundation, transferring their retail banking activities to a new bank in which they hold a stake.
"Our estimate is that more than 80 percent of savings banks will opt to become banks. It's a no-brainer. They need to be able to raise capital," Carlos Trascasa, director and partner at McKinsey and Co. in Madrid said at a conference last month. This additional restructuring will ensure a return to "double digit" profits, he said.
FODDER FOR PREDATORS?
Last month, JC Flowers, a U.S. buyout fund specialising in distressed banks, agreed to subscribe to a convertible bond issue by Banca Civica, one of five Spanish cajas that failed the stress tests. This ground-breaking deal -- the first time a foreign institution has invested in a caja -- does not mean the savings banks will become merely fodder for speculators, analysts say. Spain's listed banks have been waiting in the wings to pick up cheap assets from the cajas, their long-time fierce competitors, particularly in the smaller regions.
"The leading banks are grabbing small and mid-sized firms' lending at fat margins as the loans roll off the cajas, which do not have the funding to hold on to them," a U.S. bank analyst said.
Last month, BBVA said it hopes to grab between 2 and 3 percentage points in market share from the cajas in two-three years. Mid-sized lender Popular has set up a new bank with France's Credit Mutuel-CIC to participate in the consolidation, focussing on cajas' branch networks or loan portfolios.
"A rough estimate could be around 300 million euros for a 300-branch network," the banking source said, although noted this depends on the size and location of the branches.
Spain eases cuts on infrastructure budget
MADRID: Spain’s government said yesterday it will spend 500m more than planned on infrastructure projects but still maintain its goal of slashing the deficit to the eurozone limit by 2013. Transport and Development Minister Jose Blanco told a news conference the 500m will cover some 50 projects which were suspended due to austerity measures.
The socialist government in May introduced a 15-billion-euro austerity package to rein in the public deficit from a massive 11.2 percent of gross domestic product in 2009 to six percent in 2011 and three percent — the eurozone limit — by 2013. Blanco on July 22 announced a reduction in his ministry’s budget of ¤6.4bn for 2010 and 2011, leading to the suspension of 199 road and rail projects for one to
four years.
Unions protested, claiming that the cuts would lead to the loss of 100,000 jobs at a time when unemployment has soared to more than 20 percent. Finance Minister Elena Salgado told the news conference the new higher spending limit is the result of improved market conditions which has allowed the government to reduce its debt costs, and would not affect the deficit-reduction goals.
She also said the government has no plans to cut taxes to rein in the deficit.
“We believe that the current tax structure is adequate,” she said. Salgado said last week that the government planned to relaunch some suspended public works projects, but gave no details. Blanco said yesterday that the projects to be revived were those that were already in “an advanced state.”
He said one of these would be the completion of a motorway connecting Madrid and the northern coastal city of Santander. Spain slumped into its worst recession in decades at the end of 2008 as the global financial meltdown compounded a crisis in the once-booming property market.
18th August 2010
Spain debt auctions ease euro zone nerves
Spanish debt auctions attracted strong demand on Tuesday and allayed concerns about the pressure on costs of funding for euro zone countries saddled with high debt and poor growth.
MADRID (AP) — Spain has borrowed €5.5 billion ($7.05 billion) by selling 12- and 18-month bills at lower interest rates despite renewed market worries over the economy's recovery. The Finance Ministry said it sold €4.34 billion ($5.44 billion) in 12-month bills at a marginal rate of 1.89 percent, against 2.24 percent in the last sale in July.
It said €1.17 billion ($1.5 billion) was sold in 18-month bills at 2.15 percent, compared to 2.40 percent last month. It was the fourth consecutive bond sale at lower interest rates following months of increases amid fears Spain might need a bailout because of its swollen public deficit.
Madrid's stock market was up 0.8 percent after days of losses amid signs Spain's economy will take some time to emerge from nearly two years of recession.
17th August 2010
Santander renews merger talks with M&T Bank corp.
MADRID, Aug 17 (Reuters) - Spain's Santander has renewed talks to merge its U.S. operations with New York regional lender M&T Bank Corp, the Financial Times reported on Tuesday, as it resumes its pursuit of the American market.
Talks about merging Santander's Sovereign Bank into M&T stalled in May over who would control the enlarged business, sources told Reuters. However, the two banks have again started exploring a deal and have sounded out the views of regulators, including the Federal Reserve, the FT said, citing people familiar with the matter. Santander declined to comment.
The bank has made a string of purchases this year, including the buyout of its Mexican division and Royal Bank of Scotland's (RBS.L) UK branches, to bulk up its overseas markets and offset weak business in Spain after a severe recession. Santander's ambitions to expand its U.S. presence are no secret, and the bank wants to ensure control over the positions it acquires. It bought 25 percent of Sovereign in 2006 for $3.3 billion before buying the remainder of the troubled bank in early 2009.
"We don't believe the Spanish group to be willing to become a minority shareholder in the merged (M&T) entity," said BPI analysts in a note to clients.
"We'd attribute a higher probability of Santander launching a bid over M&T than losing control over its US operations," the analysts said.
Under the terms for the M&T deal discussed last spring, M&T would have acquired Sovereign in a stock-based transaction, creating a business with some $150 billion in assets and more than 1,500 branches in the north-east of the United States. Santander would have taken a stake in the combined entity and bought a 22.5 percent M&T stake held by Allied Irish Banks (ALBK.I), and may have injected cash in the enlarged bank, the FT said. AIB also declined to comment on the report.
By 1021 GMT, Santander's shares were up 1.0 percent at 9.54 euros, broadly in line with gains on the DJ Stoxx European bank index and the Madrid stock exchange.
Spain's Economy Continues Weak Recovery
Spain's economy confirmed it is on the growth path after growing for the second straight quarter between April and June, figures showed on Friday. Statistical office INE said the economy grew 0.2% in the June quarter, a modest pick-up from the 0.1% expansion in the first three months of the year. Economists had predicted 0.3% growth.
Prior to the first quarter, the Spanish economy had contracted for six straight quarters as it endured its worst downturn in decades. A collapse in the construction sector sparked the country's recession. On a year-over-year basis, however, gross domestic product was still down 0.2%. Economists had forecast a 0.1% fall.
The growth suggests the government's recently unveiled budget cuts are yet to have an impact on growth. Spanish Prime Minister Jose Luis Rodriguez Zapatero has announced steep budget cuts aimed at bringing down the country's large budget deficit. Measures include public sector wage cuts and smaller budget allocations for regional governments. Spain currently has a deficit of 11.2% of GDP, which it has pledged to bring under 3% by 2013. And although Spain's government debt load is not as worrisome when compared to some of its European counterparts, the country's private sector shoulders a massive debt overhang.
The government's spending cuts have been met with stiff resistance from Spaniards, with numerous demonstrations and strikes staged by public sector workers. The Iberian nation has the highest unemployment rate in the euro area at 20.1%, with nearly half of under 25s without a job. Economists said growth in the June quarter was encouraging, but were still concerned that Spain could slip back into technical recession in the coming quarters. "The second quarter could be the last quarter for some time where the government is able to prop up effectively the struggling economy," said Raj Badiani at IHS Global Insight.
"The fiscal stance is set to become increasingly more restrictive, implying that the private economy will have to fend for itself. Apart from exports, I can't see where significant private sector growth will come from."
13th August 2010
Spain's air traffic controllers call off strike
Spanish air traffic controllers have called off a strike which would have wrecked the holiday plans of hundreds of thousands of Britons. The USCA union said it will not strike this month because of the disruption it would cause holidaymakers and the impact on the tourism industry, which accounts for 11 per cent of Spain’s economy.
Controllers had voted in favour of a three-day strike which was expected to take place towards the end of August. Britons will still be able to fly to popular Spanish holiday destinations such as the Costa del Sol after traffic controllers called off a strike
Britons will still be able to travel to popular Spanish holiday destinations such as the Costa del Sol after traffic controllers called off a strike Spokesman Cesar Cabo described the decision to cancel the strike as ‘an exercise in responsibility’. The union is still in talks with ANEA, the Spanish airports authority, which had made cancelling the strike a condition for continuing negotiations. Air traffic controllers in Spain earn an average of £167,000 a year but object to recent changes in their conditions.
In February the government slashed controllers’ salaries by around 40 per cent after it was revealed some were earning up to £800,000 a year. The average wage was reduced from £290,000 a year to £167,000. In the UK the same workers earn a basic salary of between £60,000 and £90,000 a year.
Spain is Britons’ most popular holiday destination, with 17million heading there each year.
13th August 2010
Spanish Inflation Jumps To 1.9%
(RTTNews) - Consumer prices in Spain increased 1.9% year-on-year in July after rising 1.5% in the previous month, the Madrid based National Statistics Institute said on Thursday. This was in line with expectations. Core consumer prices, which exclude food and energy items, were up 0.8%.
Region-wise, consumer prices recorded the biggest rise in Catalonia. Significant price rises were also witnessed in the Basque Country, the Canary Islands, Cantabria and Murcia.
On a monthly basis, consumer prices dropped 0.4% in July, also matching expectations. Meanwhile, the harmonized index of consumer prices increased by 1.9% on a yearly basis, but falling 0.4% on a monthly basis
11th August 2010
Prime Minister Says Spain May Reverse Infrastructure Spending Cuts
Aug. 10 (Bloomberg) -- Spanish Prime Minister Jose Luis Rodriguez Zapatero said the government plans to reverse some cuts to infrastructure spending after the country’s borrowing costs declined.
“We are working to be able to ease the cuts in infrastructure,” Zapatero told a news conference today on the Mediterranean island of Mallorca. The plan, which may be announced in the next 10 days to two weeks, will put back in place some projects that were suspended, he said.
“This will be possible if, as we understand, the current financial stability allows us some room in the 2011 budget,” Zapatero said.
The extra yield investors demand to hold Spanish debt rather than German equivalents has declined by about a third since a euro-era high in June. To bring down borrowing costs, the government has enacted the deepest austerity measures in at least three decades, including a reduction in public wages and a cut in investment of almost 6 billion euros ($7.9 billion) this year and next.
The austerity measures have hurt the shares of Spanish builders, with Sacyr Vallehermoso SA’s stock falling 46 percent since the start of the year. Madrid-based Actividades de Construccion y Servicios SA, Spain’s largest builder, generates 74 percent of sales in its home market, while smaller rival Fomento de Construcciones y Contratas SA gets around 56 percent of its sales in Spain.
The country’s budget deficit was the third-highest in the euro region last year at 11.2 percent of gross domestic product and the government plans to reduce it to 6 percent next year. The spread on Spanish 10-year bonds was 153 basis points today, down from a closing high of 221 basis points on June 16.

Spain's economy faces new downturn this year
The Spanish economy could contract by up to 0.6 percent this year as the government's tough austerity measures begin to bite, a study by the BBVA bank said on Monday.
"The Spanish economy continues to recover, albeit at a slow pace, but may yet be affected by ongoing uncertainties," it said.
Spain entered its worst recession in decades during the second half of 2008 as the global financial meltdown compounded a crisis in the once-booming property market. It emerged during the first quarter of thus year with tepid growth of 0.1 percent.
The Bank of Spain on Friday forecast growth of 0.2 percent in the second quarter, while official figures from the National Statistics Institute are to be released on Friday. The central bank, along with the International Monetary Fund, predicts the economy will shrink by 0.4 percent in 2010, while the government puts the figure at 0.3 percent. But BBVA Research has a more pessimistic forecast, seeing a contraction of 0.6 percent this year, ahead of 0.7 percent growth in 2011.
"Given the weakness of the recovery in the first half of the year, we expect the Spanish economy to experience additional quarters of negative growth during the following quarters, possibly in the third quarter, although lower than those registered in 2008 and 2009," BBVA said.
"The factors behind this temporary correction setback in the economic uptrend derive mainly from the contractive effects of fiscal consolidation programmes being pushed through in Spain and Europe, and from the increased uncertainty on the international financial markets."
The government this year introduced tough austerity measures to rein in the public deficit from a massive 11.2 percent of gross domestic product in 2009 to six percent in 2011 and three percent -- the EU limit -- by 2013. The cutbacks include a freeze on pensions and a five-percent pay cut for civil servants. The government has also adopted an overhaul of the labour market that will make it easier and cheaper for employers to dismiss workers in an effort to fight an unemployment rate that has hit 20 percent, the highest in the eurozone
9th August 2010
Spain air traffic union to decide this week on strike
AFP - The union representing Spain's air traffic controllers will meet on Thursday to decide whether to go ahead with a strike over working conditions, a union member said. This means any walkout, which could disrupt flights at the peak of the tourist season, would not take place until at least August 22 as the union must give a formal 10-day warning of strike action.
Spanish air traffic controllers voted by an overwhelming majority on Tuesday to strike over government changes to their working hours that reduce overtime pay. On Friday they broke off negotiations with the state-run airport management authority, AENA.
"On Thursday will have a meeting of our executive committee which will take some decisions," a source at the Union of Air Traffic Controllers (USCA) said on Sunday.
"We still hope that it will not be necessary to call a strike and we can reach an agreement with" AENA.
Transport Minister Jose Blanco warned Sunday of "serious damage to the economy and tourism of our country" if the strike goes ahead. Exceltur, an association that represents more than 20 major travel industry groups in Spain, also warned it may take legal action against the controllers if they proceed with the walkout. It urged them to accept AENA's offer of arbitration to resolve the dispute. The controllers are angry over a government decree on working conditions announced last month which would reduce rest periods and cut generous overtime benefits.
The government has called the "millionaire salaries" enjoyed by the controllers "incomprehensible privileges" at a time of austerity to slash Spain's public deficit, the eurozone's third-highest after Greece and Ireland. It introduced tough austerity measures this year to rein in a public deficit that hit 11.2 percent of gross domestic product in 2009 as the country emerges from a recession that began in late 2008
8th August 2010
Spain second-quarter GDP grew 0.2%: Bank of Spain
LONDON (MarketWatch) -- Spanish gross domestic product grew at a slightly faster pace in the second quarter, expanding by 0.2% compared to the first three months of 2010, the Bank of Spain said in its monthly economic bulletin, according to news reports. Compared to the second quarter of last year, GDP fell by 0.2%. Spanish GDP grew by 0.1% in the first quarter. Official government data is set for release on Aug. 13. The same day, the European Union statistics agency, Eurostat, will provide its first estimate of euro-zone second-quarter gross domestic product.
QUARTERLY REPORT ON THE SPANISH ECONOMY (click here)
Spain output grows for fourth month in June
MADRID, Aug 5 (Reuters) - Spanish industrial production rose 3.0 percent year-on-year in June, beating forecasts for a rise of 2.4 percent, and adding to expectations that the economy grew again in the second quarter. Output grew for the fourth month running in calendar-adjusted terms and was only just behind a slightly revised 3.2 percent expansion in May, data from the National Statistics Institute showed.
The rise was largely the result of a jump of 5.4 percent in consumer durable goods, the first rise in that sub-index since October 2007, and came before a 2 percentage point increase in VAT which came into effect from July. Economists believe the Spanish economy grew again, albeit weakly, in the second quarter but they remain worried that the economy will slip back into recession when budget cuts take effect later this year.
'On a month-on-month basis the data were pretty flat. Spain is going to need the external sector if it is going to expand going forward and it doesn't look like happening and is one reason why it could head back into recession later this year,' said Ben May, economist at Capital Economics.
A Reuters poll on Wednesday forecast the economy grew 0.2 percent from March-June. The data also showed strong rises in energy related production, up 4.2 percent after 1.5 percent in May. Consumer goods also rose by 2.2 percent, up from 1.6 percent the previous month. Output fell by as much as a fifth in some months last year as the economy contracted sharply following 2008's financial crisis.
Spain services growth weakens in July
MADRID, Aug 4 (Reuters) - Spain's services sector expanded at its slowest pace for three months in July, dampening hopes of an upsurge in growth as companies continued to lay off staff and cut prices in response to subdued demand, a survey showed on Wednesday.
Markit's Purchasing Managers Index of companies ranging from banks to hotels fell in July to 51.3 from 51.8 a month earlier, the second straight month of declines but still above the 50 mark that divides growth from contraction. The new business segment returned to tentative growth after shrinking in June.
"July PMI data continue the recent trend that suggests a lack of momentum in the Spanish service sector, with the hoped-for recovery in the sector this year yet to fully establish itself," said economist at Markit, Andrew Harker. July's figure was just below estimates in a Reuters poll of 51.5. Spain's economy limped out of an 18-month recession in the first quarter but the euro zone debt crisis and wide-ranging austerity measures have dampened growth prospects and some observers are betting on a new dip before year-end.
According to the Markit poll, new business began to grow again in July after contracting in June, rising to 50.4 from 47.5, reflecting an improvement in demand though at a lower rate than seen during the previous phase of expansion from March to May. Employment in the service sector continued to suffer in July, with companies reporting layoffs for the 29th straight month. Unemployment rose slightly to over 20 percent in the second quarter, marking 12 straight quarters of rising joblessness, according to data by the National Statistics Institute.
"Weak consumer demand pervades the economy and continues to lead to job cuts and heavy price discounting," Harker said.
Output prices continued a two-year period of falls, dropping at the fastest rate since March, with those surveyed saying prices were cut in response to pressure from both clients and competitors. Greater price competition helped cancel out the effect of a 2 percentage point increase in value-added tax introduced on July 1 by a government looking for new ways to rein in a huge public deficit.
Costs increased, though at a slower pace than average, with some polled blaming the VAT hike and others pointing to higher fuel prices. Despite the relatively subdued business conditions, Markit found providers remained optimistic on future activity. Positive sentiment had been reported for 14 straight months, reflecting hopes the wider economy would improve, strengthening demand.
1st August 2010
IMF lowers Spain growth forecast, warns of 'fragile' rebound
(AFP) The IMF on Friday lowered its 2011 growth forecast for the Spanish economy to 0.6 percent from the 0.9 percent it foresaw in April and warned the recovery "is likely to be weak and fragile."
"The particular challenges facing Spain will likely make the recovery slower and more fragile than in the euro area," the IMF said in its latest report on the country's economy. The International Monetary Fund's growth forecast for Europe's fifth-largest economy for next year was lower than the 1.3 percent expansion predicted by the Spanish government, which is under pressure to close its public deficit.
The IMF listed a deflating property bubble, a "dysfunctional" labor market, heavy private sector indebtedness, weak competitiveness, "anemic" productivity growth and a "banking sector with pockets of weakness" as the challenges faced by the Spanish economy. "Not only does each factor pose a challenge by itself, but, together, they may create a vicious cycle of negative feedback," the IMF said in the report. "The central scenario is one of a long and gradual adjustment of the various imbalances in the economy."
Spain scraped out of recession during the first quarter when it expanded by 0.1 percent from the previous quarter and the government expects it will expand by 0.3 percent this year. The IMF predicts the Spanish economy will contract by 0.4 percent this year. It forecasts growth of 1.7 percent in 2012 and of 1.9 percent in both 2013 and 2014 and of 1.8 percent in 2015. Spain was the last major world economy to emerge from recession and concern over its weak growth prospects has fueled market worries that it may struggle to rein in a public deficit that shot up to 11.2 percent of GDP last year, the third highest level in the eurozone after Greece and Ireland.
The country entered its worst recession in decades during the second half of 2008 as the global financial meltdown compounded a crisis in the Spanish property market, which had been a major driver for growth in previous years. "What needs to happen now is that the economy as a whole has to move away from its past reliance on the housing sector and produce more tradable goods," said IMF mission chief for Spain, James Daniel. "Together with concerted and continued progress on structural reforms, especially in the labor market, we see no reason why Spain should not be able to return to good levels of growth in the medium term."
The government has introduced the steepest spending cuts since Spain returned to democracy following the death of conservative dictator General Francisco Franco in 1975 in an effort to slash the public deficit. The cutbacks include a freeze on pensions and a five-percent pay cut for civil servants. The government has also adopted an overhaul of the labour market that will make it easier and cheaper for employers to dismiss workers in an effort to fight an unemployment rate that has hit 20 percent.
Socialist Prime Minister Jose Luis Rodriguez Zapatero has also announced plans to raise the country's retirement age to 67 from 65. Daniel said if the austerity measures are complemented by a reform of the pension system, "this will put Spain's public finances on a sustainable path."