VZCZCXRO5660
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0825/01 2061657
ZNR UUUUU ZZH
R 241657Z JUL 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5153
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 4010
RUEHMO/AMEMBASSY MOSCOW 0915
RUEHRB/AMEMBASSY RABAT 6107
RUEHLA/AMCONSUL BARCELONA 3514

UNCLAS SECTION 01 OF 02 MADRID 000825 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ELAB ENRG EPET SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JULY 21-24 
 
REF: MADRID 793 
 
MADRID 00000825  001.2 OF 002 
 
 
Table of Contents: 
 
ECON/ELAB: UNEMPLOYMENT JUMPS TO 10.4%, EXPECTED TO BE 12.5% 
IN 2009 
ECON/EFIN: BUDGET IN RED FOR FIRST TIME SINCE 2005 
ECON: GOS LOWERS GROWTH FORECASTS, STILL SEES RECOVERY 
STARTING LATE NEXT YEAR 
EFIN/EINV: CAJA MADRID TROUBLES CONTINUE 
ENRG/EPET: GAS SUPPLIER SIGNS AGREEMENT WITH GAZPROM 
ECON/EINV: COMPANIES PLAN TO BID ON CALIFORNIA HIGH-SPEED 
RAIL LINE 
 
 
UNEMPLOYMENT JUMPS TO 10.4%, EXPECTED TO BE 12.5% IN 2009 
 
¶1. (U) Spain's official statistics agency (INE) released data 
showing that Spain's unemployment rate had risen to 10.4% in 
the year's second quarter, a significant jump from 9.6% the 
prior quarter.  Since undergoing a severe housing downturn 
beginning 2007, Spain has experienced rapid increases in 
unemployment.  In fact, in less than a year Spain's rate 
increased by over 2 full points (Q3 2007 unemployment was at 
8.1%, rising to 8.7% in Q4 2007 and to 9.6% in Q1 2008). 
Spain has one of the highest unemployment rates in the EU, 
second only to Slovakia.  According to the INE, the second 
quarter experienced a slight increase in job growth which was 
overshadowed by a significantly greater number of entrants to 
the labor force.  The total number of employed was 
20,425,100.  The GOS forecast on July 24 that 2009 
unemployment would average 12.5%.  (National Institute of 
Statistics, 7/24/08; El Economista, 7/24/08) 
 
 
BUDGET IN RED FOR FIRST TIME SINCE 2005, 
 
¶2. (U) The GOS ended the first half of 2008 with a budget 
deficit of 4.68 billion euros, equivalent to 0.42% of GDP. 
This represents the first time since June 2005 in which Spain 
has accrued a deficit.  During the same period last year, 
Spain enjoyed a surplus of over 5 billion euros.  The deficit 
is expected to increase in the second half of the year, in 
part as the result of the government's 400-euro tax rebates. 
Although it was only in recent years that Spain had enjoyed 
budget surpluses, the news of this deficit in conjunction 
with other negative economic news (such as bankruptcy news 
and unemployment increases), has increased concern that Spain 
may already be in a recession or will soon enter one.  (All 
Media, 7/22/08) 
 
 
GOS LOWERS GROWTH FORECASTS, STILL SEES RECOVERY STARTING 
LATE NEXT YEAR 
 
¶3. (U) On July 24, the GOS lowered its forecast for 2008 
growth from 2.3% to 1.6% and reduced its forecast for 2009 
growth from 2.3% to 1%, citing the impacts of the continuing 
international financial crisis and high prices for oil, food, 
and raw materials.  Nonetheless, it maintained that the 
economy would begin to recover in the second half of 2009. 
(Comment: These changes bring the GOS' forecasts back in line 
with private forecasts, which have declined steadily in 
recent months.  A GOS official told a USG visitor in March 
that because of the strong growth during the course of 2007, 
the full-year 2008 growth figure would be 1.9% if the economy 
remained at its fourth-quarter 2007 level.  The 1.6% 
projection suggests that quarter-on-quarter GDP will decline 
during at least some quarters.  End Comment.)  (El 
Economista, 7/24/08) 
 
 
CAJA MADRID TROUBLES CONTINUE 
 
¶4. (U) Fitch has revised downward its perspective on Caja 
Madrid, citing the savings bank's exposure to the 
construction and real estate sectors.  These two battered 
sectors account for 23% of the outstanding loans of the 
country's fourth largest financial institution.  Fitch 
calculates that Caja Madrid's nonperforming assets percentage 
will rise to 3% after the inclusion of the 900 million euros 
owed by the real estate company Martinsa Fadesa, which 
suspended payment on its obligations last week (reftel). 
Caja Madrid is Martinsa's largest creditor.  In a related 
matter, a Caja Madrid executive who had recently returned to 
the savings bank resigned after it was revealed that he had 
approved loans to Martinsa shortly before becoming a senior 
 
MADRID 00000825  002.2 OF 002 
 
 
Martinsa executive.  Despite the difficulties, Caja Madrid's 
board approved on July 21 the purchase of the remaining 60% 
it does not already control of the Mexican mortgage bank 
Hipotecaria Su Casita for 342 million dollars.  (El Mundo, 
7/21/08; El Pais, 7/22/08) 
 
 
GAS SUPPLIER SIGNS AGREEMENT WITH GAZPROM 
 
¶5. (U) Spain's leading gas distributor, Gas Natural, 
announced on July 21 that it had signed an agreement with 
Russian gas giant Gazprom to expand cooperation on liquefied 
natural gas projects.  Gas Natural gave no details on the 
agreement, but the move is widely perceived as a potential 
step to reduce Spain's reliance on Algerian gas supplies. 
Algeria is Spain's largest gas supplier (both natural and 
LNG) providing over 30 percent of natural gas consumed in 
Spain.  Last year, there was significant friction between 
Algeria and Spain over both the quantity and price, resulting 
in significant concessions on the part of the GOS.  (Note: In 
the past, Algeria supplied more than 60 percent of Spain's 
natural gas.  However, in the name of energy security, 
Spanish law has capped the amount of gas that any one country 
can provide Spain.)  (El Pais, 7/21/08) 
 
 
COMPANIES PLAN TO BID ON CALIFORNIA HIGH-SPEED RAIL LINE 
 
¶6. (U)  A consortium of four Spanish companies are preparing 
to submit a bid for a future high-speed train line connecting 
San Francisco with Los Angeles.  Train manufacturer Talgo, 
state-sponsored train operator RENFE, construction group 
Isolux, and consulting firm Imathia have been in close talks 
with state officials about the potential for constructing 
this line.  The proposals will be submitted this fall, with a 
tender likely being awarded in early 2009.  (Cinco Dias, 
7/22/08) 
Aguirre