Spain sees ‘very tough’ economy in 2013

Spanish Prime Minister Mariano Rajoy warned Friday of a “very tough” year ahead for the recession-struck economy but said he hoped for an improvement in the second half of 2013.

The Spanish economy has been shrinking since mid-2011, driving up the unemployment rate to 25 percent, the highest since the return to democracy after the death in 1975 of General Francisco Franco.

At the same time, the government has slashed spending, raised taxes, and pushed through drastic changes to the labour market while also shaking up the bad loan-ridden banking sector.

“We still have a very tough year ahead, especially in the first half, and we have to persevere in the reforms we have embarked on,” Rajoy told a news conference.

“The economy will continue in recession for some time although we hope it will start to improve in the second half of the year ahead.”

The 57-year-old Spanish leader spoke to the media after the last cabinet meeting of 2012, after a year in power marked by tough reforms that have sparked two general strikes and growing protests.

Rajoy’s right-leaning government has approved a 2013 budget with a further 39 billion euros ($51 billion) in austerity measures as it battles to slash the public deficit.

The prime minister said he had no plan to apply for help from European bailout funds, which would unlock a European Central Bank bond-buying programme to curb Spain’s borrowing costs.

“Today we are not thinking of asking the European Central Bank to intervene to buy bonds on the secondary market but that is a very useful instrument that is available to all countries of the Union,” the premier said.

“If Spain and its government believe that it is necessary to use it, let there not be the least doubt that we will do so. But in principle today we are not thinking of doing it. But we do not rule it out for the future.”

The prime minister defended his economic policy despite acknowledging the pain it caused to Spaniards.

“Although we cannot all see it, this policy is already bearing fruit,” Rajoy said, claiming results in the economy, improving confidence and recognition by Spain’s eurozone allies and the international financial markets.

Spain’s gross domestic product, its total economic output, fell by 0.3 percent in the third quarter of the year, according to official data.

The government is tipping an economic slump of 1.5 percent this year.

It also forecasts a 0.5-percent contraction in 2013, but this is widely viewed as being optimistic. The European Commission and OECD, for example, say they expect Spanish economic output to tumble 1.4 percent next year.

Spain has promised to slash its annual public deficit to 3.0 percent of gross domestic product by 2014 from a blowout shortfall equal to 9.4 percent of output last year.

Rajoy said Spain would only know if it can meet this year’s deficit target – 6.3 percent of GDP — when the final figures are in.

Spain had made an “enormous effort” to curb the deficit, he said. “Never has so much been asked of a country in recession and with the financing problems we have,” he said.

The government had been greatly encouraged by European Commission assurances that no further measures to lower the deficit were needed for 2012 and 2013, Rajoy said.

The prime minister said the 17 regional governments of Spain, which were responsible for much of the deficit slippage last year, would have to stick to their targets for 2013.

“As of today, I have to say that we have no plan to relax the deficit targets,” the Spanish leader added.