Spain revises down its economic forecast

Deputy Prime Minister Soraya Saenz de Santamaria talks about reforms

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Spain's government has revised down its forecast for the Spanish economy this year, saying the level of contraction is likely to be worse than previously predicted.

Madrid now expects the economy to contract by 1.3% in 2013, compared with its earlier estimate of -0.5%.

The announcement came as the government presented its economic programme for the next three years.

Spain's unemployment rate hit 27.2% in the first three months of 2013.

This was the highest level on record in the country. The government expects the unemployment rate to remain at about this level this year, before falling to 26.7% in 2014.

It says the economy will return to growth next year, predicting expansion of 0.5% in 2014.

The economy contracted by 1.37% last year, the second-worst annual decline since 1970.

Analysis

This latest round of economic reforms announced by the Spanish government was overshadowed by a host of bleak economic data.

Three top government ministers predicted that Spain's economy would contract by 1.3% this year.

Growth would return next year, they said, but in 2015 there would still be more people out of work than when the current government took power, at the end of 2011.

On Thursday the jobless rate in Spain rose to a new record high of 27%.

There was an absence of detail on the new reforms. There would be some limited tax increases and some structural reforms, as well as measures to help Spanish business.

Ironically the trio of ministers repeated several times what they would NOT be announcing: any further increase to income tax or sales tax (VAT).

So these reforms are nothing like the deep spending cuts and controversial tax increases of last year. Perhaps a recognition that more austerity now might only prolong Spain's economic crisis.

Deputy Prime Minister Soraya Saenz de Santamaria said the government was now aiming to cut income tax in 2015 as a stimulus measure to boost the economy.

The government also hopes to bring its deficit down to 6.3% of the country's annual economic output this year, then to 5.5% in 2014, and 2.7% in 2016.

Labour reform

Spain saw violent anti-austerity protests on Thursday, with police reporting a number of injuries and the arrest of people suspected of planning to burn down a bank.

The demonstrations came as the latest jobless figures were released, which revealed the unemployment rate topped 27% in the first quarter of the year, with unemployment among people under 25 years old reaching 57.2%.

With Spain's housing bubble burst and the economy contracting, Mariano Rajoy's conservative Popular Party swept to power in a landslide general election win in November 2011.

The government has reformed the labour laws to make it easier to hire and fire workers, and imposed tough austerity measures to cut the deficit and save the country 150bn euros ($195bn; £126bn) by 2014.

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