Economy holds strong ahead of Spain election

Spain's ruling Socialists "have dilapidated the thriving economic legacy that they inherited from the Conservative government of Jose Maria Aznar".

This is the mantra that the country's main opposition leader Mariano Rajoy of the Popular Party (PP) has been repeating ahead of general elections on Sunday.

Spain boasts the world's eighth largest economy with a yearly growth of 3.75%, double the European average.

The country has a modern and solid banking sector, has been running budget surpluses and created around 600,000 jobs each year, reducing unemployment from 25% in 1994 to a staggering 8.6%.

"Spain's extraordinary economic growth over the last 14 years is the result of a combination of exceptional circumstances, such as cheap credit, vast amounts of EU funds, and a booming housing market", says Miguel Angel García, co-author of the report The Spanish Economy in 2008, published by CCOO, one of the country's main trade unions.

"But this historical set of coincidences will not be repeated again".

Not a crisis

Mr Rajoy's mantra is inspired by much less optimistic figures and upheld by Mr Garcia's research.

"There's a pervading sense of gloom because of the bad statistics"
Spanish analyst Miguel Murado

Spain's budget surplus

Economic performance has been weak during 2007 compared with the rest of the decade.

Inflation reached a 12-year annual high in January, the current account deficit is huge and unemployment is rising again.

Estimates for 2008 show that Spain's prospects might not improve.

The property boom is on the verge of collapse and although finance minister Pedro Solbes says growth will hover above 3%, some economists now predict only 2%.

Also, the impact of the downturn in the housing cycle could be worse for Spain than for other countries, since investment in the construction sector represents 18% of the country's gross domestic product, or GDP.

"There's a pervading sense of gloom because of the bad statistics," says Spanish analyst Miguel Murado.

Indeed, polls show that economic problems now occupy second and third place in the minds of Spaniards, after terrorism and immigration.

"But his is not a crisis," adds Mr Murado. "It´s just less growth.

"There have been worse situations. Figures are certainly not as not as bad as predicted by the PP, which was hoping that the economy may become a stone around the Socialist Party's neck ahead of the elections."

Good shape

Many experts also expect Spanish economic growth to slow, but still produce healthy numbers this year and next.

"I don't see a recession," says Xavier Vives of the IESE business school.

"We will grow at a slower pace, that's all.

"Compared to other European countries, Spain has a budget surplus and its public finances are in better shape."

Little difference

Yet, the downturn, even if not sharp, might force Socialist leader Jose Luis Rodríguez Zapatero to review his overconfident economic predictions.

The irony is that although the state of the economy has been the main battleground for the campaign there are few differences in the economic programmes of the Socialists and the PP.

Both Zapatero and Rajoy promise to create more than two million jobs and tax cuts to boost consumption.

"If there's an area where it won't make a difference who wins on Sunday, that's the economy," says Mr Murado.

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