Spain's Industrial Production Shrinks Most Since 1993

By Ben Sills and Emma Ross-Thomas

Aug. 6 (Bloomberg) -- Spain's industrial production contracted the most in 15 years in June, led by declines in output of office equipment and housing-related goods.

Production at factories, farms and mines, which accounts for a seventh of the Spanish economy, fell 9 percent from a year earlier after adjusting for the number of days worked, the Madrid-based National Statistics Institute said on its Web site today. That was the biggest drop since April 1993 and followed a revised 5.8 percent decline in May.

``The contraction was stronger than expected,'' said Susana Garcia-Cervero, senior economist at Deutsche Bank in London. ``It means we all have to revise our growth forecasts to the downside.'' She currently forecasts 1.6 percent economic growth this year, less than half 2007's pace of expansion.

Spain's once-booming economy has been hit by the global credit crunch and a slowdown in the domestic housing market, just as increased energy prices are pushing up production costs and the euro's gains are damping exports. A Bloomberg News survey of economists last month showed the nation faces a 50 percent chance of falling into a recession by the end of 2009.

Production of office equipment and computers slumped 31 percent in June from a year earlier, not adjusted for the number of days worked, while output in the wood and cork industry fell 26 percent, according to today's report. Overall consumer durables declined 21 percent.

`Very Weak'

``This suggests that second- and third-quarter consumption is going to be very weak,'' Garcia-Cervero said. Dominic White, global economist at ABN Amro in London, said Spain's ``industrial output could well continue to contract for another few months or a year even.''

Spanish Finance Minister Pedro Solbes last month cut his economic-growth forecasts to 1.6 percent for this year and 1 percent for 2009, down from 2.3 percent predicted for each year in April. The 2008 outlook would be down from expansion of 3.8 percent last year. Second-quarter data on gross domestic product are due next week.

The euro's 12 percent advance against the dollar in the past year makes it harder for European exporters to compete. The currency shared by Spain and 14 other nations reached a record $1.6038 on July 15.

At the same time, the weakness in Spain's housing market has prompted construction-industry layoffs and swelled Spain's unemployment ranks. The number of people claiming jobless benefits rose 1.5 percent in July, the fourth straight increase, with claims among construction workers jumping 5.4 percent.

Seventh Month

Manufacturing is contracting across the euro region, with industrial orders declining 3.5 percent in May from the previous month. German factory orders unexpectedly fell for a seventh month in June, the Economy Ministry in Berlin said today, increasing the likelihood that Europe's largest economy contracted in the second quarter.

European Central Bank President Jean-Claude Trichet said last month there will be a ``trough'' in euro-area economic growth through the third quarter before the expansion gathers strength toward the end of the year.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.