US embassy cable - 05MADRID2109

UNCLAS MADRID 002109 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EU, SP 
SUBJECT: SPAIN RAISES ECONOMIC GROWTH FORECAST FOR 2005 
 
 
1. (SBU) SUMMARY: Spain raised its growth projections for 
2005 to between 3.2 and 3.4 percent.  The Ministry of Economy 
attributes the revision to strong performance in the first 
quarter.  However, methodological changes on the part of the 
National Statistics Institute account for the numerical 
revisions. The revised figures may further jeopardize 
Spain,s attempt to maintain EU cohesion funds beyond the 
current end date of 2006. END SUMMARY. 
 
2. (U) Spain's National Statistics Institute (INE) revised 
upward its growth projections for 2005 to between 3.2 percent 
and 3.4 percent from the previously released projection of 
2.9 percent.  The OECD now forecasts Spain's growth for 2005 
to be 3.0 percent, up from 2.7 percent. Minister of Economy 
Pedro Solbes stated publicly that the revision comes in the 
wake of strong first quarter performance.  GDP climbed an 
annual 3.3 percent in the first quarter of 2005, driven by 
good performance in the construction sector and acceleration 
in investment in capital goods. 
 
3. (U) Notwithstanding Solbes, statement, methodological 
changes were the primary reason behind the revision in the 
growth forecast for 2005.  The INE altered its methodology on 
May 19, revising all prior growth figures after changing the 
base year to 2000 from 1995.  (Note: In the future, GDP 
figures will be presented as a chain-linked index that will 
refer to the previous year's data rather than a base 
reference year.) The new figures also draw on a 2001 census, 
which showed a sharp rise in the country's population as a 
result of immigration.  In addition, INE announced a change 
in the way the contribution of bank loan deposits to GDP was 
calculated. 
 
4. (SBU) COMMENT: Spain's revised projections could 
potentially harm Spain's bid for a continuation of EU 
cohesion funds past the current scheduled end date of 2006. 
Spain has received 11.6 billion euro in cohesion funds for 
the period 2000-2006, helping to fuel rapid growth. Spain's 
new projected growth contrasts sharply with the EU projection 
of 1.6 percent for the Euro zone. Spain's Secretary of State 
for the Economy David Vegara has acknowledged that although 
the country is "richer and growing more," Spain may need to 
contribute more to the EU coffers as a result.  Regardless, 
Spain will continue to seek support for a phase-out period 
for the cohesion funds during the upcoming budget debates. 
France, underpinned by Chirac, had previously supported 
Spain,s position.  The current uncertainty surrounding 
France's position due to the no vote on the EU Constitution 
may be another blow to Spain,s hopes of keeping high levels 
of cohesion funds during a transition period. END COMMENT. 
 
MANZANARES