VZCZCXRO9200
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0058 0161651
ZNR UUUUU ZZH
P 161651Z JAN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0074
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3745
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MADRID 000058 
 
SIPDIS 
 
STATE FOR EUR/WE:SAMSON,ZERDECKI, EEB/IFD/OMA, EEB/TPP/IPE 
TREASURY FOR OIA/OEE/D.WRIGHT 
COMMERCE FOR 4212/DON CALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ENRG SP
SUBJECT: MADRID ECONOMIC WEEKLY, JAN. 12-17 
 
REF: MADRID 25 
 
Contents 
 
ECON: Grim GOS Forecasts for 2009: 1.6 Percent Contraction, 
15.9 Percent Unemployment 
EFIN: 2008 Inflation Only 1.4 Percent After December Price 
Drop 
EFIN: Standard and Poor's Warns of Possible Downgrade 
ENRG: Lukoil Bid for 20 percent Repsol Stake Shelved 
 
 
Grim GOS Forecasts for 2009: 1.6 Percent Contraction, 15.9 
Percent Unemployment 
 
¶1. (U) On January 16, the GOS announced revised projections 
for 2009 that included a 15.9 percent average unemployment 
rate and a GDP contraction of 1.6 percent.  The projection 
for the GOS budget deficit in 2009 is 5.8 percent, almost 
double the EU Maastricht limit.  According to Second Vice 
President and Minister of Economy/Finance Pedro Solbes, Spain 
will face its most difficult moments of the slowdown in 2009. 
 The GOS predicts that Spain will begin to recover from its 
recession in 2010, although GOS forecasts have been overly 
optimistic in the past.  To add to the grim news, the Bank of 
Spain recently released statistics showing that loan 
delinquency rates have tripled in a one-year period, reaching 
3.1 percent in November 2008 compared with 0.8 percent a year 
earlier. (El Pais, Expansion, El Confidencial, 1/16) 
 
2008 Inflation Only 1.4 Percent After December Price Drop 
 
¶2. (U) According to data published by the National Statistics 
Institute (INE), the official 2008 (December-to-December) 
inflation rate was 1.4 percent, below previously-reported 
estimates (reftel).  Although prices rose slightly for the 
year as a whole, they fell 0.5 percent from November to 
December after falling 0.4 percent from October to November, 
which is a sign of the dramatic slowdown in demand in the 
last couple of months.  (INE, 1/15) 
 
Standard and Poor's Warns of Possible Downgrade 
 
¶3. (U) The bond rating agency Standard and Poor's announced 
January 12 that Spain no longer enjoyed a stable triple-A 
rating and put Spain on "Credit Watch negative," according to 
press reports.  Spain's Ministry of Economy and Finance 
assured the media January 12 that S&P would not downgrade 
Spain because the GOS was taking all necessary steps to 
overcome the economic crisis.  (All media, 1/13) 
 
Lukoil Bid for Repsol Stake Shelved 
 
¶4. (U) Local media reports indicate that talks between Lukoil 
and Spanish construction company Sacyr over the sale of 
Sacyr's 20 percent stake in energy giant Repsol have fallen 
through.  It is not clear why, although some media reports 
suggest Lukoil's offer was significantly lower than the 
amount Sacyr had paid (with borrowed funds) for the shares a 
few years ago.  Sources close to Sacyr indicate that Chinese 
government-owned oil company Sinopec is now a possible 
purchaser.  Comment: Prospects for the Russian company were 
not helped by negative sentiment over the recent Russian 
stoppage of gas supplies to Ukraine.  National sentiment over 
Repsol as one of Spain's "national champions" was also an 
obstacle, and may be so for Sinopec's prospects as well. (El 
Confidencial, 1/14; El Pais 1/15) 
AGUIRRE