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Economy Minister sees 2008 GDP easing to 3pc

Published on 12/12/2007

12 December 2007

MADRID – Spanish Economy Minister Pedro Solbes on Tuesday predicted growth in the domestic economy would slow to around 3 percent next year from an estimated 3.8 percent this year.

Activity in Spain has been boosted by a decade-long property boom, which is now showing clear signs of having run its course. The College of Property Registrars yesterday estimated the number of housing transactions this year is set to fall by 12.7 percent from a year earlier to 800,000.

The government’s official forecast for GDP growth next year is 3.3 percent, but that figure is expected to be revised downward later this year due to the potential fallout from the credit crunch generated by the US subprime mortgage crisis. Solbes said sharply higher oil prices had also increased the risks on the downside.

The economy minister estimated the pace of activity in the final quarter of this year would slow to around 3.3 percent annually from 3.8 percent in the previous three months.

Solbes said that the adjustment in the housing sector was taking place in a “relatively gentle” manner and that this was to be expected given a certain mismatch between demand and supply.

Despite the slowdown, the economy continued to “cruise” along at a health clip, and in a more balanced fashion, Solbes said, with investment in equipment taking up some of the slack left by the residential construction sector.

The College of Property Registrars said that the drop in house sales reflected higher interest rates, which had reduced the purchases of property for investment purposes, while other sectors had opted to rent or wait to buy in more favourable circumstances.

The association also said that the current slowdown was to be expected “in a saturated market after 10 consecutive years of price increases.”

Solbes said he expected consumer price inflation to remain at high levels after hitting 4.1 percent in November, but that it would start to ease from March or April due to the base effect of oil prices.

[Copyright EL PAÍS, SL./ Adrián Soto 2007]

Subject: Spanish news