VZCZCXRO1723
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0943/01 2421303
ZNR UUUUU ZZH
R 291303Z AUG 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5283
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3558
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MADRID 000943 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
TREASURY FOR OIA/OEE/W.LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND EINV ENRG PGOV SENV SP
SUBJECT: MADRID WEEKLY ECONOMIC UPDATE -- AUGUST 25-29 
 
REF: MADRID 921 
 
MADRID 00000943  001.2 OF 002 
 
 
Contents: 
 
ECON: Consumer Spending Slumps 
ECON: Budget Deficit Growing Rapidly 
ECON/EFIN: Inflation Indicators Mixed - Industrial Up in 
July, Consumer Down in August 
EIND: GM to Reduce Production 
PGOV: Solbes Stands Firm on GOS Regional Financing Plan 
ENRG: Regulator to Meet with Industry after Nuclear Plant Fire 
EINV/SENV: Acciona to Build Largest U.S. Desalination Plant 
in California 
 
 
Consumer Spending Slumps 
 
¶1. (U) The economy's deceleration continues to be reflected 
in slowing consumer spending.  Household spending, which 
drives two-thirds of the economy, appeared to continue its 
drop in the summer sales season according to reports from 
retailers and business associations.  Aggressive pricing 
during Spain,s traditional summer sales was not successful 
in turning consumption around.  While consumers bought more 
items during the season, overall they spent less money than 
the year before.  Auto sales in the year through July 
decreased by 19 percent and are expected to reach a 
year-on-year drop of up to 40 percent in August according to 
auto association ANFAC.  Comment: Analysts are not surprised 
by decreased consumer spending in areas related to the ailing 
housing market.  However the extent of slowing spending in 
other areas such as textiles has surprised some.  Consumer 
confidence has been rattled by the economic "crisis," a word 
which has become commonplace in Spanish homes.  (El Pais, 
Expansion, Reuters, 8/27) 
 
Budget Deficit Growing Rapidly 
 
¶2. (U) The GOS budget deficit for the year through July 
reached 0.89% of GDP.  Through May, the GOS was slightly in 
surplus.  Since then, increased spending -- in part due to 
GOS stimulus measures -- and lower revenues have created a 
deficit for the first time since June of 2005.  While some of 
the increase in June and July was the result of the first 
half of the 400-euro tax rebate, analysts expect that as 
activity slows and unemployment rises, the deficit will 
continue to grow.  (Presidency press release, 8/27; 
Expansion, 8/28) 
 
Inflation Indicators Mixed - Industrial Up in July, Consumer 
Down in August 
 
¶3. (U) The National Statistics Office's preliminary consumer 
price inflation indicator showed August prices 4.9% above 
their August 2007 level.  The drop from July's 5.3% 
year-on-year rate was largely due to lower oil prices, but 
some analysts believe the rate is likely to gradually decline 
during the remainder of the year.  In July, industrial prices 
reached 10.2 percent above their July 2007 level, a rate of 
increase not seen since 1984.  (El Pais, 8/26 and 8/29; La 
Vanguardia, 8/26) 
 
GM To Reduce Production 
 
¶4. (U) GM Spain has advised its workers that it will cut back 
on production this year in its Figueruelas plant due to 
slowing auto sales.  For now, the company intends to cut back 
on worker hours, thereby foregoing production of 12,000 
vehicles.  GM is the first car manufacturer in Spain to 
announce a production cut.  GM employs over 7,000 in plants 
in Figueruelas and Barcelona.  Comment: GM had announced 
layoffs earlier in the year, but a union leader speculated 
that all the layoffs might not take place given the expense 
of severance packages. Spain is the world,s eighth largest 
auto manufacturer.  (All media, 8/28) 
 
Solbes Stands Firm on GOS Regional Financing Plan 
 
¶5. (U) Second Vice President and Minister of Economy and 
Finance Pedro Solbes, in parliament on August 28, defended 
the national government,s original financing proposal to 
Spain,s autonomous regions, which has been roundly rejected 
as insufficient by the Catalan parties in the national 
parliament and the Socialist-led tripartite Catalan regional 
government.  Solbes called the July proposal a good starting 
point for discussions and the only viable alternative for 
 
MADRID 00000943  002.2 OF 002 
 
 
funding equality of fundamental public services in all of 
Spain,s regions.  He also stated that his Economy Ministry 
would continue working with the regions to come to an 
agreement beneficial to all, but he warned that if a 
compromise cannot be reached, the GOS would impose its 
financing model.  (All media, 8/29) 
 
Regulator to Meet with Industry after Nuclear Plant Fire 
 
¶6. (U) A nuclear power plant near Tarragona will remain 
closed for several weeks while investigators determine the 
cause of an electrical fire in one of its generators on 
August 24.   Spain,s nuclear regulator CSN reports that the 
fire was located outside the Vandellos II plant,s 
radioactive perimeter and was extinguished less than two 
hours after being discovered.  Subsequent media reports have 
indicated that the fire may have been caused by a problem 
that the operator had known about for several months.  The 
plant,s operator ANAV, a joint operating company owned by 
Iberdrola and Endesa, is already under heavy scrutiny for 
recent mishaps at its Asco I and II plants.  The day after 
the fire, CSN announced that it will conduct a meeting with 
nuclear plant operators and industry representatives to 
analyze recent problems in Spain,s nuclear plants and review 
operating action plans.  Environmental groups are calling on 
CSN to revoke ANAV,s operating licenses.  (Various media) 
 
Acciona to Build Largest U.S. Desalination Plant in California 
 
¶7. (U)  Acciona Agua, a division of construction and 
renewable energy company Acciona, has received approval from 
the state of California to construct the biggest desalination 
plant in the U.S. in Carlsbad, California.  When completed in 
2011, the $300 million plant will provide 204,000 cubic 
meters of water a day -- enough to supply 110,000 homes. 
Acciona already operates the U.S., largest desalination 
plant in Tampa, Florida with daily capacity of 108,000 cubic 
meters.   Acciona has built over 70 desalination plants 
worldwide that provide water for 50 million people.  (Cinco 
Dias, 8/26; Reuters, 8/26; Company news release, 8/26) 
Aguirre