Spain's economy will contract 1.6 percent this year and unemployment will jump to nearly 16 percent, the government predicted Friday in a desperately gloomy outlook for a country that had been one of Europe's great success stories. This year the government will also run up a huge deficit equivalent to 5.8 percent of GDP, nearly double the 3 percent target set by the European Union, Finance Minister Pedro Solbes said.
The economy will start to recover in 2010, but vigorous growth will not return until 2011, he told reporters Friday after a Cabinet meeting at which a major revision of Spanish economic growth forecasts and other figures was presented. ``The panorama I have just described is a complex and difficult one,' Solbes said.
Until now, even as economists and the OECD predicted negative economic growth in Spain in 2009, the government had insisted it foresaw at least moderate expansion. That upbeat talk is over, at least for the time being. Fuelled by a red-hot real estate market, the Spanish economy had posted more than a decade of solid and sometimes robust growth, and as recently as 2007 GDP increased 3.8 percent.
But the construction industry was hard hit by higher interest rates on mortgages and a credit crunch in which banks spooked by financial turmoil abroad abruptly ended what had been lavishly easy lending practices. Housing sales in November were down nearly 36 percent from the same period of 2007.
Spain's unemployment rate now stands officially at 11.3 percent, the highest in the European Union. Last year the Socialist government of Prime Minister Jose Luis Rodriguez approved several packages of measures designed to stimulate the economy, help the jobless pay their mortgages and provide liquidity for banks to start lending it again. But officials acknowledged Friday it will take time for all this to kick in.
``2009 is going to be a tough year,' Deputy Prime Minister Maria Teresa Fernandez de la Vega said.