Spain reaffirms forecast of 0.3 percent contraction for 2010

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Spanish Finance Minister Elena Salgado reaffirmed Sunday the government's forecast of an economic contraction of 0.3 percent this year, despite the more pessimistic expectations of other institutions.

"We are continuing to maintain our forecast: there won't be any negative (growth) quarters and the year will end with a drop of 0.3 percent" in gross domestic product, Salgado was quoted as saying in the Publico daily.

The Spanish economy grew on a quarterly basis by 0.1 percent in the first quarter and 0.2 percent in the second.

However, on a year-on-year basis Spanish GDP registered drops of 1.3 percent in the first quarter and 0.2 percent in the second.

In the third quarter "growth will slow down a little, but we won't end up in recession," said Salgado, not excluding the possibility of zero growth.

The Spanish government's forecast is more optimistic than those of the Bank of Spain and the International Monetary Fund, which expect the country's economy to contract 0.4 percent in 2010.

They also foresee far slower growth in 2011, 0.6 to 0.8 percent compared to 1.3 percent forecast by the government, raising doubts over the government's ability to rein in its massive public deficit.

The government this year introduced tough austerity measures to slash the public deficit from a massive 11.2 percent of GDP in 2009 to six percent in 2011 and three percent -- the EU limit -- by 2013.

Salgado reaffirmed those objectives saying "we will reduce the deficit by more than three points between 2010 and 2011" to reach six percent, which she was the equivalent of "more than 30 billion euros".

The minister said economic growth in 2011 would allow Spain to meet the target without taking more of the painful austerity measures the government was forced to implement this year.

© 2010 AFP

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