Business life: My finance news blog

The Spanish government approved 18 billion euros ($28 billion) of emergency tax cuts and spending to shore up an economic expansion undermined by a slumping housing market and the global credit shortage.

The measures, passed by decree today and enacted immediately, will provide a 400-euro tax rebate to all workers and pensioners, part of 10 billion euros of outlays this year. The remaining 8 billion euros are earmarked for next year.

Prime Minister Jose Luis Rodriguez Zapatero is tapping a budget surplus to cushion the effect of a slowing economy, which the International Monetary Fund forecasts will ease by more than half this year to 1.8 percent. House prices in Spain fell in real terms for the first time in 10 years in the first quarter after tripling in the past decade.

“The economic and budget policy of this government in the last four years has allowed us to accrue a surplus in the public accounts,'' Deputy Prime Minister Maria Teresa Fernandez de la Vega said at a press conference in Madrid “This lets us take measures to stimulate the economy, to reinvigorate job creation and to help people and families in greatest difficulty.''

Home sales imploded in the first quarter, declining 23 percent on the year, while shares of real-estate developers have collapsed. The stock of unsold homes in Spain is more than 600,000, according to Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion.

Developers' Shares

Inmobiliaria Colonial SA, Spain's third-largest developer, has lost three-quarters of its value in six months. This week, Barcelona-based Grupo Aisa SA fell to the lowest since the shares first traded in Madrid in 1999 after a court said it will consider whether to declare it insolvent.

The global credit crunch stemming from the collapse of the U.S pay day loans cash advance flexible payments. housing market is exacerbating Spain's own housing slump by restricting funds available for banks and homebuyers. Mortgage lending fell 28 percent on the year in January.

“If this episode is prolonged, its effects on the Spanish economy may be significant, since it is an economy in which external financing is a basic element of its growth,'' Bank of Spain governor Miguel Angel Fernandez Ordonez said April 15. “That the real estate cycle matured at the same time as international financial tensions emerged has been particularly unfortunate for our economy.''

Jobs, Services

There are signs that the housing slowdown is beginning to drag down other areas of the economy. Jobless claims have jumped by more than 280,000 in the past six months and activity in services plunged in March, an index of purchasing managers indicated. Manufacturing contracted for a fourth month.

The stimulus package will add 0.2 or 0.3 percentage point to economic growth this year, Finance Minister Pedro Solbes said at the same press conference.

One measure waives the fees charged by banks and notaries to extend a mortgage for the next two years, making it cheaper for homeowners to lower their payments by stretching out the life of the loan. The government also abolished the wealth tax and announced a 200 million-euro program to help unemployed construction workers find jobs.

The Ministry of Public Works has already accelerated its tendering process this year, Solbes added. The ministry awarded 6 billion euros of contracts in the first quarter, almost double the amount in the year-earlier period.

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