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Spain is heading for a hard landing

By Ben May

Published: March 3 2008 15:35 | Last updated: March 3 2008 15:35

Evidence of a major slump in Spain’s industrial sector has further worsened the outlook for the economy ahead of this weekend’s general election, says Ben May, European economist at Capital Economics.

Economic data released yesterday suggests that the country’s industrial sector is weakening rapidly, in contrast to the moderate expansion being seen in other parts of the eurozone, he says.

“What’s more, the more forward-looking components of the data suggest that there is worse to come. This will obviously add to growing concerns that the downturn underway in the economy will not be confined to the housing and property sectors.”

Mr May says that one source of hope is the prospect of a generous fiscal boost after this Sunday’s election.

“Both prime minister Zapatero and his challenger Mariano Rajoy are attempting to woo voters by promising income tax cuts,” he says. “But while the outcome of the election is still too close to call, we do not expect it to have a significant bearing on the outlook for the economy. Any fiscal boost is likely to prove too little too late.”

Mr May says he expects the Spanish economy to slow significantly more sharply than is generally expected this year, with GDP growth dipping below 2 per cent for the first time in a decade.

He warns: “We remain concerned that, whatever the outcome of the vote, Spain is heading for a hard landing.”

http://www.ft.com/cms/s/0/d4b59382-e933-11dc-8365-0000779fd2ac.html