Spain’s 2011 deficit could top 8% of GDP

Spain’s new government yesterday warned that the public deficit for 2011 could be even higher than the eight per cent of gross domestic product it predicted last week.

We are in a very difficult situation, very complex, and without a doubt the hardest in the past decades in Spain

The right-leaning government said on Friday the deficit would veer beyond a previous forecast of six per cent of GDP as it unveiled spending cuts and tax hikes to claw back €15.1 billion in 2012.

Revising that outlook, Finance Minister Luis de Guindos said: “It is possible that it exceeds eight per cent, but I hope it won’t be much higher.”

“A big part of this difference (in deficit forecasts) comes from the regions,” Mr de Guindos told private radio Cadena Ser, adding that he expected them to “make an effort” to help restore fiscal health.

Spain’s 17 autonomous regions, which are responsible for health and education services, were hard hit by a 2008 crash in the housing market and are a growing source of concern for economists and policy-makers.

“Everyone must participate in this effort,” the minister said. “We are in a very difficult situation, very complex, and without a doubt the hardest in the past decades in Spain.”

Prime Minister Mariano Rajoy, freshly installed after beating the Socialists in November elections, has vowed to meet Spain’s target of reducing the public deficit to 4.4 per cent of GDP in 2012.

Madrid aims to narrow the deficit to three per cent of GDP – the limit agreed by European Union members – by 2013. The public budget in EU terms comprises the budgets of central government, welfare systems and local authorities. Mr De Guindos said measures to rein in the public deficit would be accompanied by structural reforms in the labour market and the financial system aimed at reviving Spain’s economy.

“The government has a very aggressive reformist agenda for the next few weeks and months,” he said.

“We all must reduce the public deficit, but I also believe that we must put in place economic reforms because Europe can’t limit itself to a simple economic policy of budget adjustments.

“It is economic reforms that will allow us to emerge from the crisis.”

A full budget plan is to be unveiled in March when the exact 2011 public deficit is known, the government has said.

In a another sign of the sharp economic downturn, Spanish car sales plummeted by 17.7 per cent in 2011, falling to their lowest level since 1993, hurt by the Spain’s towering 21.5 per cent unemploy-ment rate, the ANFAC automobile association said yesterday.