Spain says its economy worse than expected

MADRID/SPAIN: Spain's once-booming economy is in worse shape than expected and could slip to zero growth, the finance minister said in an interview on Sunday.

But the Socialist government which has been reluctant to acknowledge hard times in one of Europe's main economic success stories does not expect a recession, Finance Minister Pedro Solbes said in an interview with the newspaper El Pais.

For more than a decade, Spain's robust growth made it the envy of much of Europe. But new figures suggest the economy will expand only 1.6 percent this year and 1.0 percent in 2009, compared with 3.8 percent in 2007, Solbes said.

He said the new figures showed the situation is worse than what he believed was the case two months ago when he denied Spain was in an economic crisis.

The conservative opposition has accused the government of playing down Spain's economic woes, including rising inflation and unemployment, especially in the run-up to the March 9 vote in which Prime Minister Jose Luis Rodriguez Zapatero won re-election.

The Spanish economy began slowing last year as the construction sector cooled due to rising interest rates that curtailed home sales.

Solbes blamed Spain's troubles on both domestic woes and ``imported problems'' such as soaring oil prices and weak economies in Europe and the United States, according to the newspaper interview.

``For the past two months there have been radically different figures, such as the rise in oil prices or interest rates, that give us the idea that the economic situation is worse than any of us had thought,'' he was quoted as saying.

He said Spain would experience flat or slow growth over the next few quarters, but not a recession _ provided there are no more ``surprises'' from oil prices or other variables.

Spanish inflation is now running at more than 5 percent a year, a point higher than the euro zone average, but both rates should fall about a point by year's end, Solbes said.

He said he did not expect the European Central Bank would raise interest rates.