VZCZCXRO7771
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0370/01 0881910
ZNR UUUUU ZZH
P 281910Z MAR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 4551
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 5339
RUEHME/AMEMBASSY MEXICO 0663
RUEHLA/AMCONSUL BARCELONA 3374
UNCLAS SECTION 01 OF 02 MADRID 000370
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA
E.O. 12958: N/A
TAGS: EAGR ECON ECPS EFIN EIND EINV ELTN ENRG EPET
SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - MARCH
15-28
MADRID 00000370 001.2 OF 002
Table of Contents:
1. ECON/EFIN: 2008 Economic Growth Forecast at 2.5 Percent
2. ECON/EFIN: Budget Surplus Declines
3. EIND: Housing Sales Decline Continues
4. ECON/EFIN: Catalan Economy Minister Concerned About U.S.,
Global Woes
5. ELTN: Emboffs Meet with Rail Security Lead
6. ENRG: Renewable Electricity Cost Rising
7. EAGR: Ag Minister Welcomes EU Dairy Quota Increase
8. ECON/EFIN: Santander, GE to trade over 1B euros in assets
9. ECPS: Telefonica to Compete in Mexico?
10. ECON/EINV: Construction Firm Wins Florida Road Contract
11. EPET: CEPSA to Explore for Oil in Colombia
2008 ECONOMIC GROWTH FORECAST AT 2.5 PERCENT
1. (U) Economic analysts forecast 2.5 percent economic growth
for Spain in 2008 and not more than 2.1 percent in 2009: The
Savings Bank Studies Foundation (Funcas) recently came out
with these forecasts based on interviews with 14 national
economic consultancies. (Comment: There is a widespread
sense that President Zapatero,s second government will focus
much more on economic issues than his first government. So
far, Spanish banks seem to be in good shape. However, in a
sign that problems in the construction sector may be more
serious than so far acknowledged, the Dubai Sovereign
Investment Fund has decided not to buy the troubled real
estate firm Colonial after all.) (Expansion, 3/26/08)
BUDGET SURPLUS DECLINES
2. (U) The GOS collected euros 9.3 billion more than it spent
in January and February of this year as opposed to the euro
13 billion surplus it had during the same period in 2007.
This represents a 27.5 percent decline in the size of the
surplus. Higher spending explains a lot of the decline in
the surplus - in fact spending was up by 17 percent during
this period. The government is spending a lot more on
infrastructure and higher pension payments. Tax collection
is down, especially value added taxes from smaller companies,
which reportedly reflects the cooling construction sector,
especially in the residential area. Income tax collection
actually went up during this period, although income tax
rates are not higher. The Secretary of State for the Budget,
Carlos Ocana, remains confident that in 2008 Spain will still
run a budget surplus of 1.2% of GDP. (Comment: Given the
uncertainties in the global and Spanish economies, it is
difficult to forecast with any certainty what Spain,s budget
picture will be by the end of 2008. We do know, however,
that the government is likely to try to use spending to
maintain growth - interest rate cuts are not possible as
rates are controlled by the European Central Bank - so the
budget surplus will be under severe pressure this year.)
(ABC, 3/28/08)
HOUSING SALES DECLINE CONTINUES
3. (U) The number of sales of new and used homes in January
was 27 percent below the January 2007 number. Sales of used
homes fell by 36 percent, while sales of new homes fell by 15
percent, suggesting that owners were more reluctant than
builders to lower their asking prices. The amount of new
mortgage lending was 28 percent below the January 2007 level,
the largest one-year percentage drop since INE began
publishing the statistic in 1995. (El Pais 3/27/08)
CATALAN ECONOMY MINISTER CONCERNED ABOUT U.S., GLOBAL WOES
4. (SBU) Catalan autonomous community Economy and Finance
Minister Antoni Castells described to visiting Econ Counselor
on March 27 his concerns about the possible impact on Spain's
economy of U.S. and global difficulties. Castells thought
that, if there were no global difficulties, the housing
slowdown in Catalonia and resulting slowing growth would be
manageable. However, he was concerned that the situation
would be aggravated by either global financial system turmoil
or the impact of a possible U.S. recession on the rest of the
world.
EMBOFFS MEET WITH RAIL SECURITY LEAD
5. (SBU) On March 27, Econ officers and TSA program analyst
met with the Director for Security for ADIF, the
quasi-governmental agency in charge of Spain's railway
MADRID 00000370 002.2 OF 002
infrastructures. The Director, Antonio Bertomeu, provided
Emboffs with a general overview of Spain's rail system and
described security measures employed by ADIF to protect
against general crimes and terrorism. TSA rep put forward
various suggestions for information exchanges between TSA and
ADIF, for which the Director was extremely appreciative. He
also committed to a closer relationship with the Embassy.
RENEWABLE ELECTRICITY COST RISING
6. (U) The Ministry of Industry, Tourism, and Commerce, which
has responsibility for energy issues, announced that the cost
of subsidies in the electricity "special regime," which
primarily applies to projects that generate electricity from
renewable sources, would climb to 2.7 billion euros this
year, up from 1.5 billion in 2006 and 2.2 billion in 2007.
This year's total amounts to about 60 euros per Spaniard.
(Expansion 3/17/08)
AG MINISTER WELCOMES EU DAIRY QUOTA INCREASE
7. (U) Minister of Agriculture Elena Espinosa welcomed the
EU's decision to increase milk production by two percent
after prices in Spain and other countries rose significantly
in the second half of 2007. The Minister said the increase
would allow price stability. Spain's quota will be 6.24
million tons, 4 percent of the EU total; annual consumption
is around 9 million tons. Spain accepted a low quota as one
of its conditions of entry into the EU in 1986.
SANTANDER, GE TO TRADE OVER 1B EUROS IN ASSETS
8. (U) Banco Santander and General Electric have reached a
preliminary agreement to exchange businesses in Europe valued
at 1 billion euros. Under the terms of the preliminary
agreement, Banco Santander would acquire GE Money's units in
Germany, Finland and Austria, and its card and auto
businesses in the UK, while GE Commercial Finance would
acquire Italian commercial bank Interbanca. (Santander and
GE press releases reported 3/27/08)
TELEFONICA TO COMPETE IN MEXICO?
9. (U) Telefonica and Mexico-based Televisa consider teaming
up to compete with Carlos Slim-owned Telmex and
America Movil: Telefonica,s reported interest stems from the
fact that it needs to find a big cable
operator in Mexico in order to offer fixed-line telephone,
mobile telephone, internet and pay TV
services. Televisa needs a partner with Telefonica,s size
to compete with Telmex. So far no formal
deal has been announced, but there is media speculation about
a possible deal. (Expansion,
3/5/08)
CONSTRUCTION FIRM WINS FLORIDA ROAD CONTRACT
10. (U) OHL with U.S. subsidiary Community Asphalt wins
second road construction contract in Florida: This second
deal is for a USD 197 million contract to expand a section of
I-95 from four lanes to six lanes and to build a second story
for the extension of the Pineda Causeway. The first contract
was for a USD 111 million project to refurbish a section of
US-1. The Caja de Madrid is helping with the financing.
(Comment: Presumably the willingness of Spanish banks to help
in the financing makes it easier for OHL and Community
Asphalt to win contracts in Florida. Caja Madrid is also a
partner in a joint venture with another construction firm
that is bidding on U.S. contracts.) (Expansion 3/25/08)
CEPSA TO EXPLORE FOR OIL IN COLOMBIA
11. (U) Oil company CEPSA announced March 24 that it had
signed a purchase and sale agreement to acquire the rights to
explore the Caracara Block in Colombia. The Caracara Block
has estimated reserves of 40 million barrels of crude oil.
CEPSA is expected to invest up to $1 billion on this
particular project and plans to raise its overall level of
crude oil reserves and production worldwide. The company has
increased its presence in Colombia, pursuing various
contracts related to exploration. It is also involved in
exploration and production activities in Algeria and in
Egypt. (El Pais 3/25/08, CEPSA press release)
AGUIRRE