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Spain's Salgado sees export-driven growth in 2011

Source: Reuters - Tue 5th Oct 2010

Spain's Economy Minister Elena Salgado said on Tuesday exports will drive mild growth next year although data showing a September contraction in services and manufacturing heightened concerns about a double-dip recession. Salgado said economic forecasts - she highlighted the Organisation for Economic Cooperation and Development, or OECD, outlook for 0.9 percent growth in Spain's GDP - were coming into line with the official 1.3 percent growth outlook for 2011.

"That's a separation of just 4 decimal points. We're basing our outlook on our belief that exports will continue to grow ... and we also believe that consumer spending will continue to recover" Salgado said in a television interview on Tuesday.

However, a survey of purchasing managers released on Tuesday by Markit showed the services sector - including everything from banks to hotels - fell to 47.9 last month from 49.2 in August, hitting its lowest level since February and lower than expectations.

The overall index was driven down by a sharp fall in the new business index.

Another Markit report, last Friday, showed Spain's manufacturing activity shrank in September for the first time in seven months. However, stronger export orders prevented the index from falling further.

Spain has turned off economic stimulus and implemented austerity measures to cut a high deficit, choosing to risk slow growth after markets punished its sovereign bonds earlier this year on jitters the country was heading into a credit crisis.

Spain crept out of an 18-month recession in the first quarter, but third quarter growth is expected to be marginal.

Salgado said the government was on target to cut the deficit to 6 percent next year from 11 percent last year.

Spain lost its sole remaining top-line triple-A credit rating last week and Standard & Poor's ratings agency forecast years of anaemic economic growth.

The government has bet on reforms aimed at pushing industry and making Spain more competitive after a housing bubble burst, deflating a long run of growth.

But Salgado admitted overhauling an economy that was heavily dependent on the construction industry will be slow.

"It's true we need a bit of time" she said, adding there was still a lot to do, such as reforming the pension system and putting off the retirement age to 67 from 65 now.

SERVICE SECTOR SHRINKS

In the 2011 budget presented last week to Congress the government raised the outlook for both exports and private consumption next year.

A high level of structural unemployment is Spain's biggest problem, Salgado recognised, after data on Monday showed that unemployment rose above four million people in September.

Spanish unemployment was the highest in the euro zone at over 20 percent in the second quarter.

Unions staged a general strike for one day last week to protest at austerity measures and the lack of jobs recovery, but the strike did not have impact beyond transportation and industry and the government has vowed to stick to budget cuts.

Salgado said Spain would have more unemployment this year than originally forecast but that job creation would kick in next year.

"There are signs of improvement in unemployment... There's been a slowdown in the unemployment figures" she said.

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