Tags: Spain | Growth | Forecasts | recession

Spain Cuts Growth Forecasts as Valencia Prepares to Seek Bailout

Friday, 20 July 2012 09:56 AM

Spain said the recession will extend into next year as the region of Valencia prepared to seek a rescue from the central government and European finance ministers approved the bailout of Spanish banks.

Gross domestic product will fall 0.5 percent in 2013 instead of rising 0.2 percent as the government predicted April 27, Budget Minister Cristobal Montoro said after the Cabinet met in Madrid. The government will spend 9.1 billion euros ($11 billion) more paying interest than in 2012, he said.

As the government set out the spending limit for next year’s budget amid a surge in borrowing costs, Valencia said it would tap an emergency-loan fund created last week. Regions face about 15 billion euros of debt redemptions in the second half, with Catalonia and Valencia the most indebted states.

“Like other regions, Valencia is suffering the consequences of liquidity restrictions in markets as a result of the economic crisis,” the regional administration said on its website.

Spain created the 18 billion-euro bailout mechanism to help cash-strapped regions even as its own access to financial markets narrows. The gap between Spanish and German 10-year bond yields widened to a record of 606 basis points today.

The slump came as euro-area finance chiefs signed off on a package of at least 100 billion euros to prevent the collapse of the country’s financial system.

Jobless Rate

The economy returned to recession last year and unemployment is surging after the collapse of the real-estate boom. The economic outlook is worsening as the government implements 110 billion euros of measures over three years to cut budgets, raise taxes, shrink public wages and charge more for education and healthcare.

Unemployment will be 24.6 percent in 2012 instead of 24.3 percent, the government’s forecasts showed today, and 24.3 percent in 2013 instead of 24.2 percent. It revised the forecast for this year’s contraction to 1.5 percent from 1.7 percent. Exports will continue to drive the economy, rising 6 percent next year, as domestic demand continues to contract.

The spending limit for 2013 will be 126.8 billion euros, 9.2 percent higher than a year earlier, Montoro said. Stripping out the interest costs and contributions to the welfare system, the spending ceiling will fall 6.6 percent from 2012, he said.

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Friday, 20 July 2012 09:56 AM
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