As the European Central Bank's policymakers gather in Madrid today to consider another rise in interest rates,they will also get a chance to experience first hand the enduring paradox that is Spain's buoyant economy.

The bankers will fly over asea of construction cranes before landing at the brand new, Richard Rogers designed, terminal atBarajasairport.  A waiting fleet of limousines will take thempast new sub­urbs that have sprungup dur­ing Spain's unprecedented building boom.

More than 400,000 homeshave been built in and around Madrid in the past five years, in part to accom­modate 1million immigrants who have settled in the capital.

The traffic above ground will be slow and ill-tem­pered. Thanks to plentiful consumer credit at negative real interest rates, there are 3m more cars on the road than five years ago.

"There are two factors sus­taining Spain's economic growth," says Jose Luis Feito, a Spanish economist. "The first is lowEuro interest rates, which have been lower than Spanish inflation since 2002.  The second is immigration, which has moderated wage growth while increasing demand for all kinds of goods and services including housing."

The Spanish economy is in its 11th year of uninter­rupted growth, making it a rare bright spot within an otherwise sluggish Euro zone. Spain has expanded by an annualised 3,5 per cent in the first quarter of 2006, compared with the Euro zone average of 1,9 per cent.

Signs of overheating have been evident for some time. House prices have risen by 150 per cent since 1998, even though the housing stock has doubled over the same period. (Spain consumes half of all the cement in the European Union.) The country's inflation rate of 4 per cent is the highest in the 12 nation Euro zone, leading to a dramatic loss of competitive^­ness against its main trading partners.

The €67bn ($86bn, £46bn) current account defi­cit is the second biggest in the world after the US in absolute terms, and the world's largest in relative terms, at 7,4 per cent of gross domestic product.  For some time now, econo­mists have warned that growth based on a property bubble and a consumer spending spree - both fuelled by cheap credit - cannot last. Concern deepened when family indebtedness reached a record 115 per cent of disposable income at the end of last year, according to the Bank of Spain.

"The foundations of eco­nomic growth are now extremely fragile," says Rafael Pampillón, head of the economics department at the Institute de Empresa business school in Madrid. A rise in interest rates, higher unemployment, a drop in demand for new homes, fewer tourists - any of these factors could pierce the property bubble."

Mr Feito says a rise of two percentage points in Euro interest rates, to 4,5per cent, would be enough to tip Spain into recession.  Antoni Espasa, an econom­ics professor at the Carlos III University in Madrid, says Spain has only a narrow window of opportunity to defuse the "time bomb" of chronic high inflation and declining competitiveness.  "We need more deregula^­tion in all sectors of the economy," he says. "We need more investment in research and development."

But it is difficult to push through change in times of bonanza. "There is a lot of complacency in business and government," says Mr Pampillón. Record tax and social security receipts have encouraged the Socialist gov­ernment to increase spending, excluding debt servic­ing, by almost 7 per cent this year. This, says Mr Pampil^­lón, is contributing to inflationary pressures.  "The government could help engineer a soft landing by adopting an austere budget, but this is unlikely as 2007 and 2008 are election years," he says.

Spanish economists are reluctant to predict if or when a crash will come. The consensus is that Spain has, at most, two more years of strong growth before latent problems come to the fore.  "The Spanish economy is living on borrowed time," says Emilio Ontiveros, a pro­fessor of business economics at the Autonomous University of Madrid.  Banks continue to extend credit - 40-year mortgages are now available as house prices have climbed beyond the reach of most first-time buy­ers"_.- and Spaniards are sinking deeper into debt. The only factors delaying a crash are low interest rates and the demand created by 4m immigrants, who have brought about a 10 per cent increase in Spain's popula­tion in the past six years. 

Mr Ontiveros, who pre­dicts consumer spending will slow down this year, sees the chance of a soft landing if Spanish exports recover and replace some of the activity of a cooling construction sector.

"We need a better eco­nomic mix to achieve sus^­tainable growth" he says. "At the moment what we have is a monoculture based on bricks and mortar alone."