Central bank says Spain on track for 'slow recovery'
Spain's beleaguered economy should maintain a "slow recovery" although doubts remain over deficit-reduction targets and the government must stick to its reform programme, the central bank said Wednesday.
"The perspective for 2011 sees a slow recovery on the horizon which is not exempt from certain notable uncertainties," the Bank of Spain said in its annual report.
This recovery is "very dependent on the capacity to benefit from the dynamism in the rest of the world ... to allow exterior demand to supply the necessary increase in activity and employment."
"The recovery of domestic demand is conditioned by the level of debt in the private sector," it said. This was subject to "huge uncertainties and possible risk, with tensions on the big financial markets."
The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a property bubble. It stabilised in 2010 and has shown slow growth in early 2011.
It posted 0.3 percent growth in the first quarter, based largely on exports while domestic demand remained sluggish.
The crisis has sent the unemployment rate soaring to 21.29 percent in the first quarter of 2011, the highest in the industrialised world, and has whipped up nationwide demonstrations against the government's austerity measures.
For 2011 and 2012, "there exists some risk of upwards drift in the deficit objectives" if the recovery is weaker that expected, the central bank said.
It said these objectives should therefore be priorities for the government, which has predicted the public deficit will fall to 6.0 percent of output in 2011 and to within the eurozone limit of 3.0 percent in 2013, from 9.24 percent in 2010.
"In this context, the response of the economic policy is decisive and the role of structural reforms is central to be able to correct imbalances," the central bank said.
"The future economic trajectory of the Spanish economy depends on the degree to which these reforms are carried out."
The Bank of Spain noted the reforms implemented in 2010 "in the restructuring and recapitalisation of the financial system, in terms of fiscal consolidation and structural reforms (of pensions and the labour market.)"
Spain, with an economy the size of the Greek, Irish and Portuguese economies combined, has been battling to convince markets that it should not be lumped together with the three lame ducks now under EU and IMF rescue programmes.
The government has enacted measures to strengthen bank balance sheets, cut state spending, raise the retirement age, liberalise the labour market and sell off assets.
© 2011 AFP