Spain cannot afford more stimulus spending: economist

17th April 2009, Comments 0 comments

The margin for stimulus spending to revive the failing Spanish economy is nonexistent, says the chief economist of Bank of Spain.

MADRID – The Spanish government cannot afford fresh stimulus spending to revive the economy, which entered its first recession in over a decade last year, the Bank of Spain's chief economist said Wednesday.

The margin for new spending or tax cuts is "nonexistent" unless new measures to cut the budget deficit in the medium term are taken, Jose Luis Malo de Molina said in an interview published in the online edition of the Wall Street Journal.

Failing that, "we will find ourselves in a situation where we have to apply restrictive measures when the economy is still in a phase of contraction," further deepening the slump, he added.

The central bank's position is at odds with that of Spanish Prime Minister Jose Luis Rodriguez Zapatero who argues Spain has "ample margin" to introduce new stimulus spending as its total public debt is less than 40 percent of its gross domestic product, well below the EU average.

But the Bank of Spain projects the level of public debt to rise sharply from 39 percent of GDP in 2008 to 60 percent in 2010 – the European Union's limit.

The Spanish government entered the global economic downturn with a budget surplus equal to 2.2 percent of GDP in 2007 which swung to a budget deficit of 3.8 percent of GDP last year.

The Bank of Spain predicts it will rise to 8.3 percent in 2009 and 8.7 percent in 2010 even without any fresh spending plans.

The popularity of Zapatero's Socialist government is waning as the recession tightens its grip on the country following the collapse of its decade-long property boom.

The slump in the building sector has spread to other areas, pushing the unemployment rate to 15.5 percent in February, the highest level in the 27-nation European Union and nearly double the average of 7.9 percent for the entire bloc.

AFP / Expatica

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