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Spain and Liquidity Injections Still on Europe Watch List
05 Apr 2012 EDT - CNBC.com
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Spain , which has taken over from Greece as the focus of investors’ concerns following the Greek debt deal last month, is far from out of the woods despite a budget which reinforced the government’s commitment to austerity.

The country faces a “severe recession” in 2012, followed by another contraction in 2013, and a further fall in house prices, according to analysts at UBS.

There are concerns that the entire real estate sector will suffer another devaluation, which could lead to further trouble in its banking sector, which is heavily exposed to domestic property.

“Their budget is credible but there are very important growth risks and if they try to meet this target it will deteriorate the economic outlook,” Vamvakidis said.

The euro has come under pressure this week as concerns mounted.

“Reserve diversification by central banks has supported the euro, but some are now selling it. It seems that the central banks can’t decide which is worse: quantitative easing in the U.S. or the euro zone crisis,” Vamvakidis said.

He predicted euro will stay at around 1.30 against the dollar but warns that there is some downside risk to this prediction.

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