Two more years of recession for Spain

The IMF say it's not over yet

On Tuesday the International Monetary Fund released it’s latest global projections and Spain isn’t looking too good.

The report says that Spain’s GDP is likely to shrink by 1.7% this year. It will also see a budget deficit equivalent to 6.8% of GDP, and 6.3% in 2013 – both figures slightly higher than the 5.1% and 4.4%, respectively, predicted in the Fund’s September forecast.

A “mild recession” is forecast amongst the 17 members of the euro-zone as a whole with GDP contracting by 0.5%. The IMF did, however, praise the “substantial” spending cuts and tax reforms adopted by Spain’s new government in an effort to reduce the deficit.

The IMF’s chief economist, Olivier Blanchard, said on Tuesday that “the world could be plunged into another recession”, if the crisis in Europe continues to intensify.

He further urged European leaders to meet the sovereign debt problem head-on through new monetary policy, the creation and strengthening of “firewalls,” and bank recapitalisation.

In response to the report Spain’s new conservative prime minister, Mariano Rajoy, said “Spain will respect the deficit target. Today that is 4.4%, and Spain will respect that target,”

Spain may respect the target but meeting it will be another story.