Oil-price inflation ‘could threaten growth’

30 June 2004

MADRID — Spanish Gross Domestic Product (GDP) should expand by about three percent in 2004 and 2005 provided oil-induced inflationary pressures are contained, the Bank of Spain governor Jaime Caruana said Wednesday.

Growth should “approach three percent in 2004 and 2005,” Caruana told a parliamentary committee.

The Spanish economy grew 0.6 percent in the first quarter from the final three months of 2003, or an annual 2.8 percent, according to the National Statistics Institute.

The warning comes after figures released Tuesday showed inflation rose to 3.5 percent – a new yearly high for Spain.

Meanwhile, Caruana appealed to Spanish business to develop an “innovative spirit” to compete internationally.

He said despite the rise of the Spanish economy there were “elements of vulnerability”.

If these were not dealt with, then they might harm Spain’s ability to compete on the international market in the future and the capacity to advance in the European Union.

Caruana referred to the relatively low level of investment in infrastructure, which he said could damage productivity.

But he did show relative optimism about this situation for the near future.

He said there must be more stimulus for innovation within the economy.

Caruana said the difference between inflation and labour costs would harm Spain’s ability to compete with other countries in the Euro-zone.

Countries like China and those of  Eastern Europe could not only offer cheaper labour but also an increasingly better trained workforce and more modern production facilities.

[Copyright EFE with Expatica]

Subject: Spanish news