Consumers asked to boost recovery by spending more

Beset by savagely high unemployment and a mountain of debt, a chief economic official on Tuesday urged Spanish households to forget their concerns about the future and spend more in order to breathe life into the flagging domestic economy.

Describing the desire to put aside money for a rainy day as a "double-edged sword," the secretary state of state for the economy, José Manuel Campa, said if consumers were to reduce the current savings rate of 18 percent by two percentage points to levels similar to those in Germany, this would add one percentage point to economic growth. Campa said household spending accounts for half of Spain's GDP.

Campa was speaking as the European Commission slightly raised its growth forecast for Spain for this year to a level that would still leave the domestic economy trailing the main powerhouses of Europe. Brussels said it now expects Spain's GDP to grow 0.8 percent this year, compared with a previous estimate of 0.7 percent. The government sees growth of 1.3 percent for the year.

By contrast, the EC revised upward its forecasts for Germany, France and Italy to 2.4, 1.7 and 1.1 percent respectively. The EC predicted average growth in the euro zone at 1.6 percent and 1.8 percent for the European Union as a whole. Brussels attributed the improved forecast to a pick-up in exports as the recovery gathers pace in Spain's main markets. Domestic demand, however, is set to remain anemic due to high unemployment and a continuing adjustment in the ailing housing market.

The EU's statistics office Eurostat said Tuesday that Spain continued to top the European unemployment league in January, with a jobless rate of 20.4 percent, more than double the average rate in Europe of 9.9 percent.

Campa said the hike in the savings rate reflected households' worries about the future, but also a marked slowdown in investment in the housing market, where prices are starting to fall after a massive boom abruptly turned sour.