SPAIN-ECONOMY: Optimism Fed by Record High in Stock Market

By Tito Drago Reprint | | Print |

Tito Drago

MADRID, May 6 1997 (IPS) - The Madrid stock market hit a record high Tuesday, reflecting a series of positive indexes which indicate that the economy is doing well and should do even better in the near future.

State coffers registered a surplus, the domestic market is picking up, a new drop in inflation and a reduction of taxes are expected, and it is considered a sure thing that Spain will be one of the frontline countries in the creation of the European Monetary Union.

Another element feeding the optimism of authorities was the accord signed in late April by Spain’s union federations and business organisations. Business, labour and the conservative government of Jose Maria Aznar agree that the pact, which basically reduces severance pay and converts temporary work contracts into fixed ones, will help create new jobs.

Nevertheless, the Spanish Socialist Workers Party (PSOE) and the United Left coalition (IU) have been hesitant to throw their support behind the accord. And the unions continue to demand effective measures for the creation of jobs.

The secretary of budgets, Jose Folgado, reported Tuesday that State coffers showed a surplus of more than three billion dollars in April, 45.8 percent more than in the same month in 1996.

The vice-president of the government and Minister of Economy Rodrigo Rato announced, meanwhile, that fiscal pressure would drop two tenths of a percent annually starting in 1999, if predictions that the public deficit will remain steady at two percent of the Gross Domestic Product (GDP) come true. He added that the projected cutting of taxes was designed to improve workers’ capacity for saving.

The minister also said the data from April were expected to confirm a new drop in inflation.

However, the positive data that the economy has been providing for the past year has not been reflected in an increase in consumption, and only minimally in the creation of jobs, which gives rise to fears that the upward trend may not last long.

But Minister of Industry Josep Pique reported Tuesday that April automobile sales were 20 percent higher than the total registered in April 1996, an encouraging sign for the domestic market.

Another devaluation of the currency is expected within the next few days, and it is hoped that the move will translate into an increase in investment, as the previous three so far this year have done.

Jaime Comunion, an executive with the British finance company Natwest Market, said he believed that with the outlook for an under two percent annual inflation rate and a strengthened peseta, interest rates would definitely drop.

The optimism is also justified by the growth of foreign currency reserves, which increased by 728 million dollars in April to a total of nearly 66 billion dollars.