Spanish government has worsened the economic forecast for next year, anticipating a decline in GDP of 0.5% instead of 0.2% growth as expected in April, said on Friday Minister for Budget Cristobal Montoro, after a meeting of the Executive, writes Bloomberg. Spain’s economy re-entered recession last year, and unemployment is rising after the collapse of real estate.
Unemployment will reach 24.6% this year, according to new government estimates, above the 24.3% expected. Next year, the government expects that 24.3% of the working population will not have a job, slightly above the previous forecast of 24.2%. The economy will be sustained next year by exports which will increase by 6%, but domestic demand will continue to decline.
Government spending will reach €126.8 billion next year, 9.2% over the 2012 level, said Montoro. Excluding the cost of interest and contributions to the social security system, ceiling costs will decrease by 6.6% compared with 2012. On the other hand, the regional government of Valencia, one of the most indebted Spain regions, announced on Friday that will appeal to central government aid to help pay its debts. Valencia has to pay by the end of the year $2.85 billion. Spanish regions have about €15 billion to pay in the second half, Valencia and Catalonia being the most indebted.
Friday, the euro zone finance ministers have finalized the agreement for financial support of the Spanish banking system worth €100 billion, according to Bloomberg. The decision announced today opens the way for payments from temporary European rescue fund, the European Financial Stability Facility (EFSF). The bailout is vital for Spain to access financial markets and stop the debt crisis contagion.
EFSF has €240 billion left in the fund. European Stability Mechanism, which has provided €500 billion, is inaccessible until September. European Stability Mechanism can not work directly with Spanish banks until the eurozone will establish a joint supervision institution for banks. Spanish 10-year bonds had for the seventh day historically high returns of 7.12%.
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