Spain unlikely to reach 2013 fiscal targets, says Barclays

Fiscal targets set by Spain’s 2013 budget remain a challenge, according to research published by Barclays.

General government budget deficit targets were confirmed at 6.3% of GDP this year and 4.5% next year, from 8.9% in 2011, dismissing some reports earlier today suggesting that Spain was going to revise up last year’s budget deficit to include fund injections used to support the banking sector.

“Overall, we continue to believe that it will be difficult for Spain to achieve its fiscal targets – we expect the budget deficit to be 7.0% of GDP this year and 5.0% of GDP in 2013,” economists at the bank said.

The view was supported by several reasons.

“We expect growth to disappoint more than the government currently expects, particularly next year, as we think that the domestic demand headwinds that have caused the recession so far will persist in 2013. We look for GDP to contract by 1.8% this year and next, against official forecasts of contractions of 1.5% this year and 0.5% in 2013,” Barclays said.

Moreover, both regional and central government budget deficits are likely to experience fiscal slippage, which could amount to more than 1pp. “Our central scenario is for the regions to miss the target set for this year by 0.5pp – with downside risks related to mounting political tensions with the central state that could make it even more difficult for the government to enforce tight fiscal control of public finances at the local level,” Barclays said.

In light of the recent evolution of central government budget execution data for August, the bank also envisages a potential larger fiscal slippage than the one that emerged in the headline data. In line with a more pessimistic views on growth and the public finances, economists also find the unemployment and public debt forecasts announced by the government to be on the optimistic side.

“We believe that the unemployment rate will continue to increase next year (albeit at more moderate pace than in the past few years) against official expectations of a small reduction. The government expects the unemployment rate to decline to 24.3% next year from 24.6% projected for this year, while we forecast it to be 25.2% this year and 26.4% in 2013,” the bank said.

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