Brussels lowers growth estimate for Spanish GDP
Domestic demand showing clear signs of "fatigue"22 February 2008
MADRID - The European Commission said Thursday it was lowering its growth forecast for the Spanish economy as part of a downgrade for Europe as a whole in the wake of the credit crunch unleashed by the US subprime mortgage crisis and a slowdown in the United States.
The Commission also raised its inflation forecast for 2008 due to rising food and energy prices.
"Europe clearly begins to feel the impact of the global head winds in terms of lower growth and higher inflation," the European commissioner for economic and monetary affairs, Joaquín Almunia, said.
Brussels said it now expects Spain's GDP to advance 2.7 percent this year, down from a previous estimate of 3.0 percent made in November of last year.
Spain, however, is expected to continue to outstrip its euro-zone partners. The EC cut its forecast for the single-currency bloc to 1.8 percent from 2.2 percent.
In response to Brussels' downgrade, Spanish Economy Minister Pedro Solbes said "you don't need to be Einstein" to understand that in the current situation the risks to the government official forecast for growth of 3.1 percent this year are on the "downside." However, he said there are no plans for the moment to cut that figure.
The government revises its budget assumptions in July and December.
Almunia said domestic demand in Spain was showing clear signs of "fatigue" with the contraction in the property sector having a significant impact on private consumption and employment.
The Commission raised its prediction for average inflation for the euro zone to 2.6 percent from 2.1 percent, and for Spain from 2.9 percent to 3.7 percent.
Almunia attributed the inflation differential to Europe's monetary policy, which was too expansive for an economy growing at the pace of Spain. But he also said there were also inflationary pressures of a "structural" nature such as sectors protected from outside competition.
Solbes said he expected inflation in Spain to end the year below 3 percent.
Almunia said Spain is among the European countries most exposed to the risks deriving from the liquidity crisis due to its large current account deficit of about 10 percent of GDP, which makes it reliant on outside sources of funding.
The commissioner described as “irresponsible" claims in the British press that some Spanish lenders have liquidity problems.
[Copyright EL PAÍS 2008]
Subject: Spanish news