MADRID ECONOMIC WEEKLY, JAN. 12-17

UNCLAS MADRID 000058 SIPDIS STATE FOR EUR/WE:SAMSON,ZERDECKI, EEB/IFD/OMA, EEB/TPP/IPE TREASURY FOR OIA/OEE/D.WRIGHT COMMERCE FOR 4212/DON CALVERT E.O. 12958: N/A TAGS: ECON EFIN EIND ENRG SP SUBJECT: MADRID ECONOMIC WEEKLY, JAN. 12-17 REF: MADRID 25 Contents ECON: Grim GOS Forecasts for 2009: 1.6 Percent Contraction, 15.9 Percent Unemployment EFIN: 2008 Inflation Only 1.4 Percent After December Price Drop EFIN: Standard and Poor's Warns of Possible Downgrade ENRG: Lukoil Bid for 20 percent Repsol Stake Shelved Grim GOS Forecasts for 2009: 1.6 Percent Contraction, 15.9 Percent Unemployment ¶1. (U) On January 16, the GOS announced revised projections for 2009 that included a 15.9 percent average unemployment rate and a GDP contraction of 1.6 percent. The projection for the GOS budget deficit in 2009 is 5.8 percent, almost double the EU Maastricht limit. According to Second Vice President and Minister of Economy/Finance Pedro Solbes, Spain will face its most difficult moments of the slowdown in 2009. The GOS predicts that Spain will begin to recover from its recession in 2010, although GOS forecasts have been overly optimistic in the past. To add to the grim news, the Bank of Spain recently released statistics showing that loan delinquency rates have tripled in a one-year period, reaching 3.1 percent in November 2008 compared with 0.8 percent a year earlier. (El Pais, Expansion, El Confidencial, 1/16) 2008 Inflation Only 1.4 Percent After December Price Drop ¶2. (U) According to data published by the National Statistics Institute (INE),the official 2008 (December-to-December) inflation rate was 1.4 percent, below previously-reported estimates (reftel). Although prices rose slightly for the year as a whole, they fell 0.5 percent from November to December after falling 0.4 percent from October to November, which is a sign of the dramatic slowdown in demand in the last couple of months. (INE, 1/15) Standard and Poor's Warns of Possible Downgrade ¶3. (U) The bond rating agency Standard and Poor's announced January 12 that Spain no longer enjoyed a stable triple-A rating and put Spain on "Credit Watch negative," according to press reports. Spain's Ministry of Economy and Finance assured the media January 12 that S&P would not downgrade Spain because the GOS was taking all necessary steps to overcome the economic crisis. (All media, 1/13) Lukoil Bid for Repsol Stake Shelved ¶4. (U) Local media reports indicate that talks between Lukoil and Spanish construction company Sacyr over the sale of Sacyr's 20 percent stake in energy giant Repsol have fallen through. It is not clear why, although some media reports suggest Lukoil's offer was significantly lower than the amount Sacyr had paid (with borrowed funds) for the shares a few years ago. Sources close to Sacyr indicate that Chinese government-owned oil company Sinopec is now a possible purchaser. Comment: Prospects for the Russian company were not helped by negative sentiment over the recent Russian stoppage of gas supplies to Ukraine. National sentiment over Repsol as one of Spain's "national champions" was also an obstacle, and may be so for Sinopec's prospects as well. (El Confidencial, 1/14; El Pais 1/15) AGUIRRE