The BBVA research department said that the unprecedented recession in the global economy has caused a more severe downturn in the Spanish economy than what was forecast four months ago.

The department now forecasts that 2009 will be a year of global recession in which the Spanish economy will contract 2.8%, a rate similar to that of the European Union (2.5%).

The global economy has deteriorated dramatically in the past few months as a result of the financial crisis and de-gearing by the private sector, said the firm's Chief Economist  José Luís Escriva, and by Chief Economist for Spain and Europe Rafael Domenech. These predictions were presented in BBVA Research Department¬ís latest Spain Watch report presented last week.

Central bank policies have prevented the worse-case scenario of a total systemic collapse, but that has not been enough. Although the liquidity shortage in the interbank market has eased, there is still a great deal of uncertainty about the solvency of certain credit institutions in the international financial system.

The research department believes securitization losses and an increase in the loan-default ratio will continue to hinder any significant recovery in global financing.

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