Spain issues dismal economic forecast

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Spain’s central bank predicts unemployment would soar to 19 percent next year while the National Statistics Office reports industrial production plunged 22 percent in February year-on-year.

MADRID – Spain's central bank on Friday predicted unemployment, already the EU's highest, would soar to a whopping 19 percent next year as the economy shrinks further amid the global crisis and the collapse of the property market.

It predicted Europe's fifth largest economy would contract 3.0 percent this year, almost double the figure of 1.6 percent predicted by the Socialist government in January, and 1.0 percent in 2010.

And it forecast the public deficit would grow to a stunning 8.3 percent of gross domestic product this year and 8.7 percent in 2010.

Under EU rules, the bloc's member countries are supposed to keep their public deficit shortfalls to less than three percent of gross domestic product.

The European Commission late last month set deadlines for Spain, as well as Britain, France, Ireland and Greece, to rein in their deficits, which have exploded in the face of the economic crisis.

Spain already surpassed the limit in 2008, with a deficit of 3.8 percent of GDP, compared to a surplus 2.2 percent in 2007.

Formerly one of the eurozone's chief engines of economic growth and job creation, Spain suffered an abrupt change of fortunes last year when the global financial crisis accelerated a downturn that was already underway in its once-buoyant property sector, where sales and prices are now plummeting.

The Spanish economy entered into its first recession in 15 years at the end of 2008.

But the central bank qualified its predictions by saying they were made "in the context of great uncertainty and at a time of major financial and economic crisis across the world, whose adverse effects of which are difficult to outline."

Economy Minister Pedro Solbes also said the government's own figures, due out in the next few months, may be less pessimistic.

The government's predictions "will be based on the figures at that time, and those of the Bank of Spain are based on current figures."

The Bank of Spain forecast the unemployment rate would reach 17.1 percent in 2009 and 19.4 percent in 2010. The government in January had predicted a rate of 15.9 percent this year.

According to European Union statistics agency Eurostat, Spain's unemployment rate rose to 15.5 percent in February, the highest level in the 27-nation bloc and nearly double the average of 7.9 percent for the entire EU.

The labour ministry said on Thursday that unemployment rose in March for the 12th straight month to 3.6 million as employers slashed jobs.

The National Statistics Office earlier Friday announced industrial production plunged 22 percent in February year-on-year, the sharpest drop since such data was first compiled in 1992.

Spain's ailing auto manufacturing industry was worst hit, recording a 54 percent drop in output in February. The sector in the third biggest in Europe and accounts for just under 10 percent of the country's economic output and 15 percent of exports.

AFP / Expatica

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