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Spain faces a 30 percent chance of a recession in the next two years as the global credit shortage exacerbates a real estate slump, a survey of economists showed.

That was the median probability of a recession given in a Bloomberg News survey of 17 economists. A contraction would probably begin in the final quarter of 2008, the survey showed.

Spain's economy expanded at the slowest pace in almost eight years in the first quarter as the global credit shortage exacerbated the country's housing slump. Home sales fell by a quarter in the year to February as mortgage costs rose, banks tightened credit for potential buyers and unemployment surged.

“The bubble in the housing market has now burst, leading to shrinking construction spending and negative wealth effects,'' said Ralph Solveen, an economist at Commerzbank in Frankfurt. A recession in Spain “would have a significant impact on the euro area.''

Spain, which accounts for about 10 percent of the euro- region economy, provided a quarter of the area's new consumer spending during the past four years, according Eurostat, the EU's statistics office. Italy, the region's third-biggest economy, is already on the brink of a recession, and the U.K., the euro zone's biggest export market, faces its slowest expansion since 1992.

The European economy is buffeted by rising costs for credit and commodities and a strong euro. The price of oil doubled in the past year, the euro reached a record against the dollar last month and the yield on the 12-month euribor, the benchmark for most Spanish mortgages, was at the highest in May since 2000.

Changing Economic Cycle

“All this is happening at a time when the economic cycle is changing with the housing adjustment'' in Spain, said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid. “The more violent that is, the more likely a recession becomes.''

Spanish banks are paying the highest-ever interest rates relative to borrowing benchmarks to lure investors due to concern that the real estate slump may spark losses for lenders. Lenders already have posted losses of $379.2 billion following the collapse of the U.S. subprime mortgage market.

Spanish lenders face “continuing increases in defaults'' as house prices fall and home sales dry up, Bank of Spain Governor Miguel Angel Fernandez Ordonez said on May 14. Residential property prices fell in real terms for the first time in more than a decade during the first quarter.

The Spanish economy grew 0.3 percent in that period compared with 0.8 percent in the previous three months. The government forecasts the economy will expand 2.3 percent in 2008, the slowest since the country's last recession in 1993.

“The Spanish economy has entered a period of adjustment,'' Ordonez said. “We'll need to have less domestic demand and compensate with external demand.''

There is “practically zero'' chance of Spain suffering a recession, he added.

Sourse