IMF Forecasts Two Years of Recession for Spain

In its review of data global growth, the International Monetary Fund (IMF) reported that the Spanish economy fell back less than expected in 2012, but that it will not return to growth in 2013, and Spain’s GDP will contract by 0.6% in that year.

The IMF has also revised global growth in 2012 downward to 3.5%, and that of Latin America from 3.7% to 3.4%, on detecting “new signs of weakness,” especially in the eurozone and the United States.

“In the past three months, the global recovery, which in any case was not very pronounced, has shown new signs of weakness,” the IMF stated.

The Global Economic Prospects report notes that the Spanish economy retreated by 1.5% in 2012 and not by 1.8%, as they indicated in April, and will remain in recession in 2013, with a fall of 0.6% instead of the 0.1% growth predicted in the previous report. The improvement expected by the IMF for Spain in 2013 will be delayed with a contraction of six-tenths, after the quarterly review of the growth data in April presented a picture of a modest departure from the recession.

In 2011, the Spanish economy came out of the recession with a growth of 0.7%, a rate that the IMF believes cannot be maintained. The IMF also presented its global deficit forecasts in their Fiscal Report, which, while not quantifying the 65,000 million euros of adjustments announced by the Spanish Government on 11th July, lowered their previous forecasts.

For 2012, the IMF expects a reduction in the deficit from the 8.9% of 2011 to 7% (a drop of one point over the April forecast), while for 2013, they forecast it will fall to 5.9% of the GDP. These figures put the Spanish deficit this year above the 6.3% which Spain’s European partners had called for, while the figures for 2013 also exceeds the 4.5% deficit marked as a first step toward the 3% target for 2014, the extra year granted by the finance ministers of the euro.

The IMF noted that in the eurozone “tensions in the financial markets and over sovereign debt have increased, approaching levels close to those at the end of 2011.” “Clearly, the risks remain high and reflect the risks of delays or insufficient political action”, said the IMF, while nevertheless congratulating the EU leaders on taking “steps in the right direction,” as agreed at the summit in late June.

Diario Sur reported that the Fund stressed the importance of the European Union agreeing to capitalise the bank directly without going through the governments, because if the measures “are implemented in full, they will help break the adverse link between sovereign debt and the bank and create a banking union”. “The countries of the periphery (of the euro) need to maintain the pace of reforms and commitments, they need financial support and a growth environment to be provided by the ECB and other mechanisms of the eurozone,” the IMF indicated.

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