Spain’s GDP contracted in the fourth quarter, pushing the economy toward its second recession since 2009 and undermining the government’s efforts to reorder public finances.
GDP contracted 0.3 percent in the last three months of the year and rose 0.3 percent from a year earlier, the Spanish National Statistics Institute said in an e-mailed statement yesterday in Madrid. The figures match the estimate published on Jan. 23 by the Bank of Spain.
The People’s Party government, in power since last month, is trying to convince investors it can reduce the budget deficit by almost half this year even as the recession weighs on revenue and employment. The economy might shrink 1.5 percent, pushing the jobless rate to 23.4 percent if the government meets its austerity goals “strictly,” the Bank of Spain said last week.
“Deteriorating growth is credit-negative as it further complicates the government’s challenge of significantly reducing the fiscal deficit,” Moody’s Investors Service enior analyst Kathrin Muehlbronner said in a report yesterday. “It will be very difficult for Spain to reach this year’s deficit target given the outlook for revenue growth.”
Fitch Ratings also cited the “deterioration in the macroeconomic outlook” when it cut Spain’s credit rating two levels to “A” on Friday. The company, which also cut Italy and three other eurozone nations, said Spain would miss its deficit target this year and unemployment would remain “very high.”
With the highest jobless rate in the EU and credit shrinking by the most on record, Spain’s economy will probably slump for the next two years, contracting 1.7 percent this year and another 0.3 percent next year, according to the IMF.
That will make it impossible to reach the deficit targets of 4.4 percent of GDP this year and 3 percent next year, the IMF said last Tuesday, forecasting a shortfall of 6.8 percent this year and 6.3 percent next year.
The government inherited a bigger shortfall than the previous administration had projected, it said on Dec. 30, as the gap amounted to 8 percent, instead of the 6 percent target set with the EU. The goal for this year was made when the previous government expected the economy to growth 2.3 percent this year.
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