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Spain now 'Unlikely to reach GDP deficit target'

Wed 26th Oct 2011

Spain looks unlikely to achieve its deficit-reduction target for 2011 as economic growth slows, putting the fourth largest economy in the eurozone firmly in the sights of a debt crisis which looks set to contaminate the region further as EU leaders struggle to find a safety net.

Ludovic Subran, chief economist at credit insurer Euler Hermes SA in Paris remains doubtful : "They will never make it... Our September forecast sees Spain's deficit at 7% (Of GDP)". Furthermore, this prediction was made prior to Spain's credit rating being slashed earlier this month.

Spain's target was to reach 6% of GDP by the end of 2011, from 9.2% in 2010. Later this week the government are expected to release figures for 2011 until October, which will give an indication of how likely the yearly target is to be reached.

At this weekend's Brussels summit EU leaders ruled out approaching the ECB to fund a rescue package, which currently leaves the region exposed to the risks of spiralling debt.

Spain currently has the highest rate of unemployment at 21%, and with and economy slowed from 0.4% in Q1 of 2011 to just 0.2% in Q2, and is not expected to rise beyond this figure for the rest of the year.

Even though the EU had commented that Spain was 'on track' to meet it's deficit target by the end of the year, economists have revised their predictions in the face of falling tax revenues, escalating costs of borrowing, and a failure of central government in controlling spending by the autonomous regions.

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