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'Economy will shrink by up to 1.5 percent in 2013'

AFP · 23 Apr 2013, 09:14

Published: 23 Apr 2013 09:14 GMT+02:00

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The prediction revises the government's official forecast of a 0.5 percent recession in 2013 and comes the same day as Brussels confirmed Spain posted the biggest deficit in the eurozone last year.

De Guindos told the newspaper he saw "slight" growth in Spain's economy for 2014.

Spain, the eurozone's fourth-largest economy, shrank by 1.37 percent in 2012 as it continued to feel the effects of the collapse of a decade-long property boom in 2008.

The Bank of Spain, the European Commission and the International Monetary Fund predict the Spanish economy will shrink by between 1.4 and 1.6 percent in 2013.

Prime Minister Mariano Rajoy's conservative Popular Party government will unveil a new package of reforms aimed at reviving the economy, as well as new deficit forecasts for the next few years, on Friday.

Spain posted a budget deficit equal to 10.6 percent of gross domestic product (GDP) in 2012, the highest in the eurozone, including the cost to the state of recapitalizing the country's suffering banks.

Madrid argued at the end of March that when this cost was stripped out of the calculation, the public deficit fell to 6.98 percent of GDP last year.

Spain had agreed to reduce the deficit to 4.5 percent of GDP this year and to 2.8 percent in 2014.

But it is now seeking leeway from the EU to ease its deficit target for 2013 to 6.0 percent, and to push back as far as 2016 the obligation to get back within the terms of the EU's Maastricht Treaty, under which member states are supposed to have public deficits of no more than three percent of GDP, and debt of no more than 60 percent.

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This would allow Spain to soften austerity measures implemented by Rajoy's government that are blamed for triggering the recession.

De Guindos said the new reforms to be unveiled on Friday will not include any "significant" austerity measures.

"What we will do now is to establish a better balance between deficit reduction and economic growth. Investors' main concern right now is economic growth," he told the newspaper.

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