MADRID, Oct 1 (Reuters) - Spain's economy will be weak for
the rest of 2010 but should slowly improve next year, Prime
Minister Jose Luis Rodriguez Zapatero said on Friday, as data
pointed to a renewed slide in manufacturing.

A day after presenting Spain's most austere budget in
decades, and two days after a general strike protesting against
spending cuts, Zapatero vowed to stick to measures to cut the
country's high deficit and bring it in line with European Union
targets.

Those promises -- vital to staving off the sort of market
trouble now afflicting Ireland -- rely largely on forecasts of
growth for future years which economists already doubt, with
many saying Spain is likely to slip back into recession.

A closely-watched survey of purchasing managers on Friday
showed Spanish manufacturing activity shrank for the first time
in seven months in September as new orders taken fell.

"We will consolidate economic growth, but it will be weak in
the rest of the year, improving little by little next year,"
Zapatero said in an interview on RNE radio.

The prime minister ruled out generalised tax hikes to
achieve deficit cutting goals and said that by concentrating
cuts on public sector wages and infrastructure the government
could continue to deliver social spending.

Moody's downgraded Spain's credit rating on Thursday, the
last of the big debt ratings agencies to remove the country's
top-line rating, saying the economic growth could be weak for
several years. [ID:nLDE68T0SR]
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For stories on Europe's debt problems, click on [ID:nLDE6211JD]
For a graphic on Europe's struggles with debt, click on
http://r.reuters.com/hyb65p
Latest on Irish and Spanish debt problems: [IE-M] [ES-M]
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FEEBLE

Spain inched out of an 18-month recession earlier this year
but it grew only feebly and Economy Minister Elena Salgado
admitted on Thursday growth could slow in the third quarter
before picking up in the fourth. [ID:nLDE68T03C]

The manufacturing survey slipped to 49.6 points in September
from 51.2 in August, its first fall below the 50 mark that
separates growth from contraction since February. It was also
below forecasts for a fall to 50.5.

"The only thing preventing a sharper fall during September
was higher export business as the recoveries in demand from
France and Germany continued," said Andrew Harker, economist for
data provider Markit.

"Spain continues to show no sign of joining in with those
recoveries heading into the final quarter of 2010."

The government's official forecast is for 1.3 percent
expansion of gross domestic product next year, though many
economists have lower or even negative outlooks.

Spain has one of the highest levels of unemployment in
Europe, at around 20 percent, and Zapatero recognized that
September jobs numbers could be weak.

"Like all employment data it's very subject to seasonal
factors and September is often a month when unemployment rises,"
he said.
(Reporting by Fiona Ortiz; writing by Patrick Graham)