The Spanish government yesterday said that its recession-struck economy will contract by almost three times more in 2013 than it previously forecast, forcing Madrid to extend its deficit reduction programme by a further two years.
The deputy prime minister Soraya Saenz de Santamaria said the GDP of the eurozone struggler, which is grappling with the fallout from a real estate and banking crisis, would shrink by 1.3 per cent, up from its previous 0.5 per cent contraction estimate.
Ms Saenz de Santamaria also said that the government’s fiscal deficit would be 6.3 per cent of GDP this year, rather than the 4.5 per cent expected previously. Madrid had planned to bring its deficit down to the European Commission-mandated target of 3 per cent of GDP by next year. Now that target will not be reached until 2016.
Public borrowing is due to decline to 5.5 per cent in 2014, 4.1 per cent in 2015 and 2.7 per cent in 2016. Ministers said that the country’s new slower deficit-reduction path had been approved by the European Commission.
This week, the Spanish statistics agency reported that employment in the Mediterranean country has breached 6 million, or 27.2 per cent of the workforce. But Ms Saenz de Santamaria said this ratio would fall to 26.7 per cent in 2014, when annual growth would pick up to 0.5 per cent.
“2014 is the year of recovery,” said Luis de Guindos, the economy minister. “We’ll collect the fruit of the economic reforms we’ve done.”
Yet the latest lending figures from the European Central Bank belied that confidence. They showed that businesses across Europe are still being starved of credit. The annual rate of bank loans growth to the private sector in the eurozone was minus 0.3 per cent in March. The weak growth of credit is a blow for hopes that the Continent’s recession, which began in autumn 2011, could be easing.
The ECB also reported that the annual growth in M3, a broad money supply measure watched by the central bank as an early warning of future inflation, fell sharply in March from 3.1 per cent to 2.6 per cent. This was the lowest rate since April of last year.