Spanish government launches 11b-euro stimulus package

Channel News Asia
Spanish government launches 11b-euro stimulus package
Posted: 28 November 2008 0130 hrs

MADRID: Spanish Prime Minister Jose Luis Rodriguez Zapatero announced on Thursday an 11-billion-euro (14.3-billion-dollar) economic stimulus package to help the country cope with the global financial crisis.

The package, which will be approved at a regular cabinet meeting on Friday, represents 1.1 percent of Spain's gross domestic product (GDP) and could create 300,000 jobs in 2009, he told parliament.

"This is a strong arsenal to fight the slowdown in economic activity," Zapatero said, adding the world was facing its first global recession since World War II.

"A crisis as quick and intense as this one is without precedent and it has taken its toll on employment in our country," he said.

The bulk of the funds, 8.0 billion euros, will go to local municipalities to be used in public works projects; 500 million euros will be used for research and development, and 400 million euros will be earmarked to modernise police barracks.

The prime minister said 800 million euros would be used to support the "strategic" auto sector which has suffered an "important" drop in demand in the European Union and which was affecting Spain.

Spanish car plants will make 300,000 fewer vehicles this year compared to 2007, a 10.3 percent drop to a level of production that is similar to that recorded in 1997, Spain's auto manufacturers' association ANFAC said on Tuesday.

Spain's auto sector, which exports 80 percent of its production and accounts for 10 percent of gross domestic product, has appealed for state aid to face up to the decline in demand, which has already led several factories to fire workers or reduce their hours.

Spain is experiencing an abrupt economic slowdown as the global credit crunch puts the squeeze on an already weakened construction sector, causing the unemployment rate to hit 11.3 percent in the third quarter - its highest level in over four years and the highest rate in the 27-member European Union.

The Spanish economy contracted for the first time since 1993 in the third quarter, shrinking 0.2 percent, leaving it on the brink of recession, which is defined as two consecutive quarters of negative growth.

Last week, the Paris-based Organisation for Economic Co-operation and Development (OECD) predicted the Spanish economy would contract 0.9 percent next year, with unemployment rising to 14.2 percent.

Zapatero unveiled the stimulus package one day after the EU proposed its own 200-billion-euro stimulus package, of which 170 billion euros will come from national government budgets and the rest from the EU and European Investment Bank.

"It is time to show our determination, to have confidence in the action of governments, of the public sector, of public investments and social cohesion," he said.

Zapatero's socialist government, which was re-elected to a second term in March after a campaign whose central theme was the slowing economy, has already spent 16 billion euros this year, mostly in the form of tax cuts, to bolster activity. - AFP/de