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OECD voices fears for Spanish economy

Published on 11/05/2004

11 May 2004  MADRID - The Spanish economy will expand by 2.9 percent this year and by 3.3 percent next year, a prestigious report published Tuesday predicted.

But it warned of “new and worrying uncertainties” ahead.

The report by the Organisation of Economic Cooperation and Development (OECD) said there could be a “strong fall in the medium term” in the price of houses.

It also said that the 11 March terrorist attacks could harm Spanish tourism.

The report added that that the recuperation of euro countries is weak.

In respect of housing, the report said in the immediate future the cost of housing could rise more with an increase in consumer spending.

However, this could raise the risk of a sudden decline in house prices in the medium term.

Pedro Solbes, vice-president of the government, said he was sceptical about the predictions of the report, particularly with regard to housing prices.

The report said it was “possible that recent attacks in Madrid could provoke a fall in the confidence in the consumer and tourist sectors, even though the impact of this could be slight”.

However, improvement of the international economic climate, according to the report, needs to give priority to exports and invest in equipment.

But the rise in the euro will affect exports in 2004 “though the negative effect of the rise will be diminished by 2005”, the report said.

The OECD is more optimistic than the IMF about the possibility of the improvement in the Spanish economy, which said that the GDP would only increase by 2.8 percent this year and 3.3 percent next year.

The official prediction is Spanish economy production will only increase by 3 percent next year.

The report added: “Globally the rise of the GDP could rise to three percent in 2004 and 3.25 percent in 2005.

“Meanwhile, inflation needs to be stabilised in 2004 and will go up slowly throughout the year.”

Unemployment in Spain would stand at 10.9 percent this year and fall to 10.2 percent in 2005, the report predicted.

The report said that the GDP will accelerated towards the end of 2003, supported by the buoyant private consumer spending almost as much by the public spending as well as spending on construction.

“Home building should reinforce even more, as a result, the solid progression of employment,” the report added.

[Copyright EFE with Expatica]

Subject: Spanish news