Spain will not follow ailing neighbor Portugal in seeking a European bailout, Spanish Economy Minister Elena Salgado said yesterday, hoping Lisbon’s move will draw a line under the Europe’s debt crisis.
Portuguese Caretaker Prime Minister Jose Socrates announced on Wednesday that Portugal was asking for financing from the EU, the third euro zone member to do so after Greece and Ireland last year. He argued that the economic risks had now become too great to go it alone after borrowing rates soared.
The much-anticipated bailout could turn market attention back to Spain and its weak public finances, ahead of a three-year Treasury auction later this year.
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“[The risk of contagion] is absolutely ruled out ... it has been some time since the markets have known that our economy is much more competitive,” Salgado told national radio station SER.
Spain on Wednesday cut its forecasts for growth for the next two years on the likely impact of higher interest rates and oil prices, ahead of an expected European Central Bank (ECB) rate hike yesterday.
A quarter point move by the ECB would not endanger Spain’s economy, which is already dealing with harsh public spending cutbacks and labor market reforms, Saldago said.
“The impact of a small rise in rates is very slow. Mortgages [in Spain] are only revised once a year and so the transmission [of a rate rise] is not immediate,” she said.
Spain exited an 18-month recession at the start of last year but growth has stuttered since then. Economists and the central bank doubt the economy can grow as much as the government expects.
The government sees the economy expanding by 2.3 percent next year and 2.4 percent in 2013, trimming earlier forecasts for growth of 2.5 percent and 2.7 percent respectively.
For this year, the government kept its forecast for growth at 1.3 percent.
“Internal demand is not growing, but external demand is growing more than expected so we can keep our growth forecast,” Salgado told a news conference.
The unemployment rate, -already the highest among industrialized countries, will hit 19.8 percent this year.
The rate will ease to 18.5 percent next year, 17.3 percent in 2013 and 16 percent in 2014, but the figures are all higher than previously forecast by the government.
Spain’s unemployment rate stood at 20.33 percent at the end of last year, the highest level in the Organisation for Economic Cooperation and Development (OECD).
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