Government raises forecasts for deficit and unemployment rate

Spain’s acting government has increased its forecast for the country’s public deficit for 2016 from 2.8% to 3.6% of gross domestic product (GDP), setting the figure for 2017 at 2.9%, up from 1.4%.

The new figures were announced on Tuesday by acting Economy Minister Luis de Guindos ahead of an appearance before Congress to outline a “Stability Program” that will be sent to Brussels detailing these forecasts.

If the forecasts prove to be correct, Spain will miss EU objectives for deficit reduction

The new data from the government also expects unemployment figures to worsen toward the end of this year, rising 0.2 percentage points to 19.9% of the active population, and public debt to rise by several tenths of a point to 99.1% of GDP.

De Guindos blamed this gloomier outlook on a slowdown of the global economy.

If the forecasts prove to be correct, Spain will miss EU objectives for deficit reduction, which had been set for 2.8% for this year. But on Tuesday, it was also announced that De Guindos has cut a deal with Brussels giving Spain an extra year to bring its deficit down – with the possibility of another year of margin.

“Meeting the goal [of 2.8%] would require very severe budget cuts,” De Guindos explained on Tuesday. “We started with a public deficit of 5% of GDP, and therefore, the adjustment required to reach that goal would be around two percentage points of GDP, excluding unforeseen, non-recurring costs. Such an effort would have a negative impact on our growth.”

De Guindos said on Tuesday that spending for next year would be cut by €2 billion in a bid to meet EU targets

With regional, local and general elections last year, the Popular Party government decided to cut taxes and raise its costs, granting civil servants an extra payment they had been denied in 2012. Spain’s regions also upped spending, all of which contributed to Spain’s missed deficit target, which came in at 5% in 2015 instead of 4.2%.

De Guindos said on Tuesday that spending for next year would be cut by €2 billion in a bid to meet EU targets.

The acting economy minister also warned of the effects of a slowdown in the global economy: “The data so far points to a gradual slowdown compared to the preceding quarter. This is mainly due to a slowdown in internal demand and the worsening performance of external markets.”

English version by Nick Lyne & Simon Hunter.