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EC forecasts more growth but higher deficit for Spain

Source: El Pais - Thu 4th Feb 2016
EC forecasts more growth but higher deficit for Spain

The good news is that the Spanish economy will grow at a faster clip. The bad news is that the country will increasingly fall shy of its budget deficit targets.

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The EU's Winter Economic Forecast predicts that Spanish GDP will grow 2.8% this year and 2.5% in 2017, a little higher than Brussels had forecast three months ago.

But when it comes to the budget deficit, the European Commission is talking about 3.6% of GDP for 2016 and 3% for 2017, which would force the next Spanish government to cut a further €9 billion in spending unless Brussels gives Spain some leeway with its targets.

“Growth is decelerating smoothly but remains robust,” says the forecast, which is key to guiding the economic policies of the next Spanish government.

Spanish GDP will not keep up last year’s pace of growth of 3.2%, easing down to 2.8% in 2016 and 2.5% in 2017, still significantly above the European average.

Working in Spain’s favor are low oil prices and extraordinary measures set in place by the European Central Bank, which are offsetting the effects of domestic instability at the political level and the threats to the euro.

Enormous weaknesses

Despite the good growth prospects, however, Spain is still showing several enormous weaknesses, including an unemployment rate that doubles the European average and will hover around 19% in 2017, even though Brussels underscores that job creation was “very robust in the second half of 2015.”

Another weak point is Spain’s soaring debt levels, which leave the country exposed to outside factors that could create renewed volatility in the financial markets.

The administration of acting PM Mariano Rajoy, in place since November 2011, has missed all its deficit targets, and Brussels believes that the incoming government will also fall short this year “unless there are changes to economic policy.”

EU Commissioner Pierre Moscovici, who is presenting the forecasts on Thursday, already warned in November that Spain needs a new raft of cuts, especially after a pre-election lowering of taxes resulted in reduced revenues for the state.

Recommended Reading :

* Fitch affirms Spain at BBB+ outlook stable

* IMF raises growth forecast for Spain despite political uncertainty

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