MADRID (Bloomberg) -- 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.

The Spanish economy grew 0.3 percent from the previous three months, the slowest since the third quarter of 2000 and less than half the 0.8 percent pace of the previous quarter, the National Statistics Institute said in an e-mailed statement. Europe’s fifth-biggest economy grew an annual 2.7 percent, down from 3.5 percent in the previous quarter.
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 government forecasts the economy will expand 2.3 percent in 2008, the slowest since the country’s last recession in 2003. The International Monetary Fund says growth will be 1.8 percent.
“The data has been incredibly weak since last summer and weakened further at the beginning of this year,” Lavinia Santovetti, an economist at Lehman Brothers in London, said. “The bust in the housing market is having an effect on the whole economy.”
Santovetti said there is a 50 percent chance that Spain will slip into recession this year or next.
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Spain’s economy may have grown less than the euro region average for the first time since the final quarter of 1999. The economy of the single currency area likely grew 0.5 percent in the first quarter, according to the median estimate of 32 economists in a survey by Bloomberg. Eurostat, the EU’s statistics office, will publish the figure today.
Grupo Ferrovial SA, the Spanish builder that spent $20 billion buying UK airport operator BAA Ltd., Tuesday said first-quarter profit slumped 83 percent as revenue at its construction arm faltered. Banco Santander SA, Spain’s biggest bank, boosted loan-loss provisions by 70 percent as defaults rose in Spain and abroad.
“The slowdown in the real estate market may be more intense than was expected a few months ago,” the Bank of Spain said in a report last month. The credit shortage “is contributing to a climate of uncertainty regarding the economic outlook with clear consequences for confidence and spending decisions.”
“The adjustment the Spanish economy is suffering at the moment is sharper and more acute that expected,” said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid. “The credit restrictions, commodity price increases, the gains in the euro and the uncertainty about the world economy, all this has an effect, especially on consumers.”
Consumer confidence in Spain fell to a record low last month and first quarter unemployment jumped to 9.6 percent, the highest in three years. Surveys showed both manufacturing and service industries contracted in April.