Zapatero sees growth improving, but data weak for now

 

Spain's economy will be weak for the rest of 2010 but should slowly improve next year, Prime Minister Jose Luis Rodriguez Zapatero said on Friday, as data pointed to a renewed slide in manufacturing.

A day after presenting Spain's most austere budget in decades, and two days after a general strike protesting against spending cuts, Zapatero vowed to stick to measures to cut the country's high deficit and bring it in line with European Union targets.

Those promises - vital to staving off the sort of market trouble now afflicting Ireland - rely largely on forecasts of growth for future years which economists already doubt, with many saying Spain is likely to slip back into recession.

A closely-watched survey of purchasing managers on Friday showed Spanish manufacturing activity shrank for the first time in seven months in September as new orders taken fell.

"We will consolidate economic growth, but it will be weak in the rest of the year, improving little by little next year" Zapatero said in an interview on RNE radio.

The prime minister ruled out generalised tax hikes to achieve deficit cutting goals and said that by concentrating cuts on public sector wages and infrastructure the government could continue to deliver social spending.

Moody's downgraded Spain's credit rating on Thursday, the last of the big debt ratings agencies to remove the country's top-line rating, saying the economic growth could be weak for several years.

FEEBLE

Spain inched out of an 18-month recession earlier this year but it grew only feebly and Economy Minister Elena Salgado admitted on Thursday growth could slow in the third quarter before picking up in the fourth.

The manufacturing survey slipped to 49.6 points in September from 51.2 in August, its first fall below the 50 mark that separates growth from contraction since February. It was also below forecasts for a fall to 50.5.

"The only thing preventing a sharper fall during September was higher export business as the recoveries in demand from France and Germany continued" said Andrew Harker, economist for data provider Markit.

"Spain continues to show no sign of joining in with those recoveries heading into the final quarter of 2010."

The government's official forecast is for 1.3 percent expansion of gross domestic product next year, though many economists have lower or even negative outlooks.

Spain has one of the highest levels of unemployment in Europe, at around 20 percent, and Zapatero recognized that September jobs numbers could be weak.

"Like all employment data it's very subject to seasonal factors and September is often a month when unemployment rises" he said.