Spain's recession could drag into 2014 due to austerity measures, economists warned, after Madrid outlined a new €65bn (£51bn) cuts package.
After it was this week granted an extra year by fellow EU members to reduce its deficit to the 3pc target, Spain has unveiled extra measures to improve its public finances.
The package announced on Wednesday, the fourth in seven months, includes a rise in VAT from 18pc to 21pc, cuts to unemployment benefits and state salaries, and the end of a tax rebate for home buyers.
Spaniards have reacted with alarm, as the moves, particularly the rise in VAT, are expected to slow consumer spending further and hit the country’s tourism industry. Economists agreed that the measures would slow growth.
“The additional fiscal measures will further weigh on Spain’s growth prospects and underline our expectation that the recession in Spain will deepen and continue in 2013,” said Ebrahim Rahbari at Citi.
Edward Hugh, an economist based in Barcelona, said he would not rule out the possibility that Spain’s recession “could spread into 2014 now”.
The economy could contract by 2pc this year, 1pc in 2013 and then 0.3pc in 2014, he said.
A shrinking economy makes it harder for a country to reduce its deficit, as tax revenues fall and social spending tends to rise. Spain’s two biggest unions - the UGT and CCOO - called for a day of protests against the fresh austerity measures on July 19, saying the new steps hit low- and middle-earners the hardest.
“Not one of the approved measures implies any effort by businesses and those on highest incomes,” they said. Separately, data showed industrial production across the eurozone unexpectedly climbed by 0.6pc in May, after slumping by 1.1pc the previous month.
However, May marked only the second rise t in nine months and did not fully reverse April’s fall. “The bounce in eurozone industrial production in May does little to change the view of a contraction in the overall economy in the second quarter,” said Martin Van Vliet, an economist at ING Bank.
telegraph.co.uk
After it was this week granted an extra year by fellow EU members to reduce its deficit to the 3pc target, Spain has unveiled extra measures to improve its public finances.
The package announced on Wednesday, the fourth in seven months, includes a rise in VAT from 18pc to 21pc, cuts to unemployment benefits and state salaries, and the end of a tax rebate for home buyers.
Spaniards have reacted with alarm, as the moves, particularly the rise in VAT, are expected to slow consumer spending further and hit the country’s tourism industry. Economists agreed that the measures would slow growth.
“The additional fiscal measures will further weigh on Spain’s growth prospects and underline our expectation that the recession in Spain will deepen and continue in 2013,” said Ebrahim Rahbari at Citi.
Edward Hugh, an economist based in Barcelona, said he would not rule out the possibility that Spain’s recession “could spread into 2014 now”.
The economy could contract by 2pc this year, 1pc in 2013 and then 0.3pc in 2014, he said.
A shrinking economy makes it harder for a country to reduce its deficit, as tax revenues fall and social spending tends to rise. Spain’s two biggest unions - the UGT and CCOO - called for a day of protests against the fresh austerity measures on July 19, saying the new steps hit low- and middle-earners the hardest.
“Not one of the approved measures implies any effort by businesses and those on highest incomes,” they said. Separately, data showed industrial production across the eurozone unexpectedly climbed by 0.6pc in May, after slumping by 1.1pc the previous month.
However, May marked only the second rise t in nine months and did not fully reverse April’s fall. “The bounce in eurozone industrial production in May does little to change the view of a contraction in the overall economy in the second quarter,” said Martin Van Vliet, an economist at ING Bank.
telegraph.co.uk
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