Falling domestic demand has caused a surplus of Spanish wine that could spell trouble for producers, despite signs that export sales are recovering, Spain's Wine Federation has warned.

Wine sales in Spain's restaurants and bars fell by 4.6% in value and 9% in volume for the first seven months of 2009, compared to the same period last year, the Federation said today (18 September). Volume sales slipped 22% in July alone.

"The present economic instability has brought about a strong fall in sales in all the channels," said the trade body.

Spanish wine exports have shown a slender recovery, up 0.4% in value and 5.6% in volume in June, but were still down 15% for the first six months of calendar 2009, compared to the first half of 2008.

With little short-term improvement expected in Spain's domestic economy, the Federation warned that the wine producing sector is facing a potential "disaster".

Spain's 2009 grape harvest is likely to produce around 38m hectolitres, down from 41m in 2008, the Federation said.

Grape prices remain below historic averages and, despite a lower harvest and high quality expected in some regions in 2009, prices are not expected to rise due to a supply surplus, the body said.