Spain’s economy and related exchange traded fund (ETF) may likely be dampened by diminished domestic spending and an increasing number of unemployed.

Spanish Economy Minister Elena Salgado stated that unemployment was higher in Spain than in other European countries as a result of structural problems and a stagnate housing market, which has put out 800,000 construction workers, write Manuel Maria Ruiz and Inmaculada Sanz for the Guardian.

Spain’s unemployment rate stands at 17.4% and is estimated to climb up to 21.5%, or more than 5 million, by the end of 2010. The economy is projected to shrink 3.8% in 2008 and 1.2% in 2010, and the budget deficit will grow to 9.2% of GDP this year and 11.5% the next.

A Plan E (Spanish Plan for Economic Stimulus and Employment) is Spain’s response to their current recession, according to Reuters. The stimulus, worth 5% of GDP, has reduced joblessness but economists believe it has not done much to effect domestic demand.

Ratings agency Moody’s listed Spain as a “vulnerable” nation with a AAA sovereign debt rating and Standard & Poor’s already downgraded Spain to AA+.

Most economists predict the Spanish economy will stay in the doldrums for a while since its economic model has been exhausted, according to AFP. Previously, the economy was fueled by domestic demand and a property boom, but now household spending has fallen 4.1% after a 2.3% drop in the last three months of 2008. Investment in construction also plummeted 12.4% in the first quarter.

On the upside, Spain’s ETF has crossed above its 200-day moving average on the strength of Banco Santander, which is up 21.8% year-to-date and is 17.3% of the fund. Telefonica, which is 24.9% of the fund, reported this month that its first quarter net profit rose 9.8%, thanks to a growing Latin American business that has helped offset sluggishness in Europe.

  • iShares MSCI Spain Index (EWP): up 2.9% year-to-date


Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.