Spanish savings banks forecast GDP falling by 3.8%

The Foundation of Savings Banks (Funcas) has predicted that the Spanish economy will shrink by 3.8% this year and by 1.2% in 2010, figures which are 7 and 8 points worse than previous estimations (-3% and 0.5% respectively).

Funcas says that it has made these changes in its forecast using the latest economic indicators available and figures for the first quarter of 2009 which show that GDP has gone down by 3% compared to the same period for 2008 and by 1.9% compared to the previous quarter. According to Funcas these figures show that the Spanish economy is performing worse than expected.

Funcas also said that the fact that the sharp fall in the economy which has significantly affected the housing and banking sectors and which is also influenced by the global recession will further slow down economic recovery. The savings banks do not expect a growth in GDP until 2010 at the earliest.

Funcas estimates growth in savings and the reduction of debt and the recovery of consumer spending due to low inflation will begin in the first quarter of 2010 when household spending will start to increase although figures will remain negative until the second quarter.

With regards to the construction sector in Spain, Funcas has predicted that the prospects for construction in the housing sector will remain ‘very negative’ and that the sector will not start to recover until the surplus stock of housing has significantly reduced. According to its predictions this will not happen until employment figures being to improve and prices adjust to potential demand. In these terms it predicts that residential construction will fall by 22.9% this year and by 16.3% in 2010.

As far as unemployment is concerned, Funcas says that the slight growth in the economy in 2010 will be insufficient to reactivate the employment market which will continue falling during 2009 and 2010.

More specifically the number of full time jobs will fall by around 6.5% this year and 2.9% in 2010. Funcas expects unemployment to grow to 18.3% this year and to 21.5% in 2010 which means that unemployment will be around 5 million by the end of next year.