MADRID ECONOMIC WEEKLY, MARCH 2-6

UNCLAS MADRID 000245

SENSITIVE
SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA
TREASURY FOR OIA/OEE/D.WRIGHT
COMMERCE FOR 4212/DON CALVERT

E.O. 12958: N/A
TAGS: ECON EFIN EIND ELAB SP
SUBJECT: MADRID ECONOMIC WEEKLY, MARCH 2-6

REF: MADRID 220

Contents:

ELAB: Official Unemployment Continues to Rise Steeply
ELAB: GOS Approves Employment/Unemployment Measures
ECON: 2008 Home Sales Down 33 Percent; Glut Expected Until
2011-12
EIND: Industrial Production Falls by Over 20 Percent
EFIN: Standard & Poor's Downgrades Banks


Official Unemployment Continues to Rise Steeply

1.(U) In February 2009, an additional 154,000 people were
reported unemployed, for a total of just under 3.5 million.
According to the Ministry of Labor, this is the highest
number of unemployed since the current calculation method was
introduced in 1996. This level is a 4.6 percent increase
from the previous month, and the 11th consecutive monthly
increase. (Comment: Spain has the highest unemployment rate
in the EU - the latest rate published by the EU was 14.4
percent in December. The GOS projects that the unemployment
rate will reach 15.9 percent by the end of the year, but
independent analysts suggest that the rate will be much
higher.) (All Media, 3/3).

GOS Approves Employment/Unemployment Measures

2.(U) After the GOS failed to get agreement from business and
labor, the Council of Ministers unilaterally approved on
March 6 six measures to encourage employment and increase
payments to the unemployed in certain circumstances. Labor
Minister Corbacho estimated that the measures would cost 1.5
billion euros. The GOS continued to resist calls from
business groups and the OECD to reduce the cost of firing
employees. (El Pais, 3/3 and 3/4; Council of Ministers, 3/6)

2008 Home Sales Down 33 Percent; Glut Expected Until 2011-12

3.(U) The number of home sales fell 33 percent in 2008 from
the year before, according to the Ministry of Housing.
Decreasing sales, combined with an oversupply of new
properties, have resulted in approximately 1 million unsold
new homes. The glut of new properties will not disappear
until the end of 2011 or the middle of 2012, according to the
head of Spain's property registrars association. (Comment:
This suggests that significant additional adjustment will be
necessary before Spain's housing property situation
stabilizes. In the meantime, activity in the residential
construction sector, which once contributed 10 percent of
GDP, has fallen greatly and has contributed to Spain's
unemployment problem.) (Expansion, 3/5; ABC, 3/5)

Industrial Production Falls by Over 20 Percent

4.(U) Industrial production fell by 20 percent in January
from January 2007, marking the 9th consecutive month in which
production was below its level of a year earlier. The fall
in auto sales and production played a strong role in this
decrease, with manufacturing in Spain of auto parts
decreasing more than 50 percent in January year-on-year and
February sales falling to a level not seen since 1993. One
of the few areas that did not experience a decrease was
coal/mineral production. (El Pais, 3/3 and 3/5)

Standard & Poor's Downgrades Banks

5.(SBU) Standard & Poor's lowered the long-term credit rating
March 4 on four banks or savings banks, including Caja
Madrid, Banco Sabadell, and Banco Popular, each among the
country's seven largest financial institutions. Standard &
Poor's maintained its rating for Spain's two largest banks,
Santander and BBVA, but changed its perspectives on those two
from "stable" to "negative." (Comment: So far, Spanish
financial institutions have fared relatively better than
their counterparts in other countries, and the GOS has touted
this as a result of Spain's strict regulations and economic
strength - despite problems in other areas of the domestic
economy. However, it is clear that Spanish banks, exposed to
bad assets related to Spain's domestic housing market
downturn, are beginning to feel the effects of the downturn.)
(All Media, 3/5)
CHACON