Spanish government points to economic upturn

4th January 2011, Comments 0 comments

Spain finally got some good news on its battered economy Tuesday as the government announced it had beaten its deficit-cutting target for 2010 and the number of unemployed had fallen for the first time in five months.

Addressing a deep concern on nervous markets, Prime Minister Jose Luis Rodriguez Zapatero predicted the government would also meet this year's deficit goal.

Investors are demanding ever higher interest rates for buying Spanish debt because of concerns about the size of Spain's annual deficits and the country's heavy exposure to bond markets.

The big fear is that if debt market rates go too high, Spain could be forced to seek an international rescue -- a crisis with global implications that would dwarf the Irish and Greek bailouts.

Seeking to calm those fears, Zapatero's Socialist government has promised to lower the public deficit from 11.1 percent of output in 2009 to 9.3 percent in 2010, and 6.0 percent in 2011.

It has vowed further to reduce the deficit to below the 3.0-percent European Union limit by 2013.

"Of course we will meet the deficit target of 6.0 percent in 2011, just as we set the goal of reducing the deficit in 2010 to 9.3 percent and today I can say that we are going to be somewhat better than the objective we set," the prime minister said in an interview with Onda Cero radio.

He said he was convinced that Spain's semi-autonomous regions, which have racked up large deficits, would comply with their goals for the year ahead.

To reduce the deficit, Zapatero's Socialist government has pushed through unpopular austerity measures, despite stagnant growth and high unemployment.

The measures include higher sales taxes and an average cut to public workers' wages of five percent.

Last month parliament narrowly approved the government's austerity measures for 2011 which cut expenditure for this year by 7.9 percent to 122 billion euros (170 billion dollars).

The government has repeatedly stressed that its accumulated public debt is below the European Union limit of 60 percent of annual output, or gross domestic product. It rose to 57.7 percent of GDP at the end of September from 53.2 percent at the end of 2009.

The Spanish economy, the EU's fifth biggest, slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of the once-booming construction sector.

It emerged with tepid growth of just 0.1 percent in the first quarter of 2010 and 0.2 percent in the second but then stalled with zero growth in the third.

The crisis has sent the unemployment rate soaring to almost 20 percent, the highest in the European Union.

The labour ministry said on Tuesday the number of people unemployed fell for the first time for five months in December.

There were 4.1 million people registered as jobless last month, down 10,221 or 0.25 percent from November, the biggest decline for the month of December since 2000, it said in a statement.

But compared with the total 12 months ago the figure was still up 4.50 percent.

"December is is normally a weak month, if unemployment lowered in December it is a good jobless figure," Zapatero told Onda Cero radio.

Raj Badiani, an analyst with IHS Global Insight, said the figure was better than expected but may have been due to "seasonal factors" and predicted the overall jobless rate would begin to edge back up again.

"Our main concern is that employment creation is likely to be negligible in the first half of 2011, as the austerity measures begin to cull public-sector jobs, with private-sector employment failing to pick up the slack," he said in a research note.

The National Statistics Institute is to publish the fourth quarter unemployment rate on January 28.

Last year the government introduced hotly contested labour market reforms that cut the country's high cost of firing workers and gave companies more flexibility to reduce working hours and staff levels in economic downturns -- changes that Zapatero argued would boost job creation.

The prime minister said Tuesday the fourth quarter would record positive growth which would pick up steam in 2011 but he warned that job creation this year would be "far from what we need and desire. It will be slow and progressive."

The government forecasts an economic expansion of 1.3 percent in 2011.

© 2011 AFP

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