VZCZCXRO3798
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0079/01 0231613
ZNR UUUUU ZZH
P 231613Z JAN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0105
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHME/AMEMBASSY MEXICO 0691
RUEHLA/AMCONSUL BARCELONA 3757
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000079 
 
SIPDIS 
 
STATE FOR EUR/WE:SAMSON,ZERDECKI, EEB/IFD/OMA 
TREASURY FOR OIA/OEE/D.WRIGHT 
COMMERCE FOR 4212/DON CALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ELAB ENRG ETRD SP
SUBJECT: MADRID ECONOMIC WEEKLY, JAN 19-23 
 
REF: A. MADRID 58 
     ¶B. 08 MADRID 1080 
 
MADRID 00000079  001.2 OF 002 
 
 
Contents: 
 
ECON/ELAB: Fourth Quarter Unemployment Reaches 13.9 Percent 
ECON: EC Predicts Longer and More Severe Downturn in Spain 
ELAB/ETRD: GOS Calls for More Consumption, Buying Spanish, to 
Save Jobs 
EFIN: S&P Downgrades Spain 
EFIN: Banks Move to Increase Liquidity 
EINV/ENRG: Acciona to Construct Latin America's Largest Wind 
Farm in Mexico 
 
 
Fourth Quarter Unemployment Reaches 13.9 Percent 
 
¶1. (U) Fourth quarter 2008 unemployment rose 2.6 points to 
13.9 percent, the highest rate since 2000. The number of 
unemployed increased by 609,100 from the previous quarter and 
now is over 3.2 million.  The 13.9 percent fourth quarter 
rate is a steep increase from the 8.6 percent rate from a 
year earlier.  The sharp rise in unemployment is in part due 
to Spain's residential construction crash, leaving many in 
the construction and associated sectors without jobs. 
Coupled with the effects of the financial crisis and the 
global economic downturn, 2008 was a difficult year for 
Spain.  With unemployment expected to continue to rise, this 
year will be even more difficult. (National Statistics 
Institute, All Media, 1/23) 
 
EC Predicts Longer and More Severe Downturn in Spain 
 
¶2. (U) Just three days after the GOS released revised and 
more negative macroeconomic forecasts, the European 
Commission released its own estimates, which predict an even 
longer and slightly deeper downturn for the Spanish economy. 
Instead of the GOS's 1.6 percent GDP contraction for 2009, 
the EC is predicting a 2 percent contraction with the 
recession continuing into 2010, contrary to the GOS 
prediction of growth for 2010.  Instead of GOS predictions of 
a 15.9 percent unemployment peak in 2009, the EC estimates 
16.1 percent unemployment with an increase to 18.7 percent in 
¶2010.  European Commissioner for Economic and Monetary 
Affairs Joaquin Almunia (a Spaniard) downplayed the 
differences in estimates but indicated that the recovery 
would take more time because of the difficulties related to 
Spain's housing sector adjustment. (All media, 1/20) 
 
GOS Calls for More Consumption, Buying Spanish, to Save Jobs 
 
¶3. (U) Calling for a joint effort by all Spaniards to spur an 
economic recovery, President Zapatero noted that lower 
interest rates and less expensive oil should provide some 
segments of the population with more disposable income and 
that "the citizenry as a whole should continue to have 
confidence and consume as usual" to help avert further job 
losses.  Minister of Industry, Tourism, and Trade Miguel 
Sebastian echoed Zapatero's call while urging people not 
seriously affected by the crisis to purchase products made in 
Spain and travel within the country instead of abroad. 
According to Sebastian, such measures could save some 120,000 
jobs.  Unemployment recently topped the 3 million mark and is 
now estimated at 13.9 percent and rising.  (Comment: 
Zapatero's public remarks over the past year have 
consistently indicated an awareness of the importance of 
consumer confidence, so much so that earlier this year he 
left himself open to opposition charges of not understanding 
or admitting the depth of the economic difficulty.) 
(Expansion 1/19, 1/20) 
 
S&P Downgrades Spain 
 
¶4. (U) On January 19, Standard & Poor's lowered its sovereign 
debt credit rating for Spain from AAA to AA , based on 
concerns about the structural weaknesses in the Spanish 
economy, and expectations that "public finances will suffer 
in tandem with a decline in Spain's growth prospects." 
Interestingly, S&P maintained its AAA long-term rating for 
the Basque and Navarra Autonomous Communities, albeit under 
credit watch with negative implications.  The downgrade has 
the effect of increasing borrowing costs for the GOS, now 
that the GOS will have to offer higher interest rates to 
 
MADRID 00000079  002.2 OF 002 
 
 
compensate investors for the increased risk of purchasing its 
debt.  GOS debt is now seen as riskier than debt from Spain's 
largest private companies BBVA, Santander, and Telefonica (as 
per credit default swap prices).  Illustrating the concerns 
of Spain's structural weaknesses, the GOS had to pay 1 
percent over what Germany would have had to pay in its debt 
issuance last week. (All Media, 1/19, S&P website) 
 
Banks Move to Increase Liquidity 
 
¶5. (U) The GOS successfully held its third liquidity auction 
January 21, lending Spanish banks over 4 billion euros in 
exchange for high grade mortgage-backed debt. The "FAAF" 
program, aimed at promoting liquidity and therefore 
encouraging bank lending to businesses and consumers, was 
heavily subscribed, with banks and "cajas" (savings banks) 
wishing to borrow double the amount offered.  Separately, La 
Caixa, Spain's third largest financial institution, made 
plans to issue 2.5 billion euros in 10-year bonds and may 
take advantage of another GOS liquidity stimulus measure to 
guarantee bank debt (ref).  (Comment: Most Spanish banks and 
cajas are still considered to have a relatively strong 
financial position, although there are indications that 
higher loan delinquencies are beginning to have an effect.) 
(Expansion 1/22, Cinco Dias, 1/22) 
 
Acciona to Construct Latin America's Largest Wind Farm in 
Mexico 
 
¶6. (U) Construction and renewable energy firm Acciona has 
begun construction in Oaxaca, Mexico on what will be the 
largest wind farm in Latin America.  With a planned output of 
250 MW, the electricity generated from the park will be 
enough to supply 500,000 consumers.  Mexican President Felipe 
Calderon inaugurated on January 22 the first phase of 
construction. (ABC, 1/23, Reuters, 1/23). 
CHACON