OECD sees Spain hitting 2012 deficit-reduction target

The OECD on Wednesday lowered its 2012 growth forecast for Spain but predicted it would still be able to meet its deficit-reduction target for next year after narrowly missing it in 2011.

In its latest Economic Outlook for the group of industrialized countries, the Paris-based organization said Spain's GDP should increase by 0.9 percent this year while the public deficit is expected to narrow from 9.2 percent of GDP last year to 6.3 percent, 0.3 points above the government's goal.

The agency's output estimate for 2011, when the government expects GDP to rise 1.3 percent, was unchanged from a previous forecast in November. However, it lowered its prediction for GDP growth for next year by 0.2 points to 1.6 percent, significantly below the government's estimate of over 2 percent, but still sufficient to hit the deficit target of 4.4 percent, largely due to lower outlays, with the proviso that "the government should stand ready to introduce further measures if needed."

There was little comfort to be drawn from the organization's report card on Spain on the job front in the short- or long-term. It estimates average unemployment will fall slightly to 19.3 percent in 2012 from 20.3 percent this year. In an exercise of long-term forecasts, it expects Spain to continue to have the highest jobless rate in the OECD by the end of 2015 at 14.5 percent, and the country would not regain its lowest pre-crisis levels of around 8 percent until 2026.

"To boost job creation, legal requirements on firms to apply collective bargaining outcomes negotiated at sectoral levels should be eased," the report said. "The cost of dismissing workers on permanent contracts should be reduced further."

Prime Minister José Luis Rodríguez Zapatero said Wednesday he expects the country's employers and labor unions to shortly announce an agreement on making the collective bargaining system more flexible in order to deal with downturns in activity.

Meanwhile, the OECD aligned itself with other multilateral agencies in predicting a recession in Portugal over the next two years, with rising unemployment, as part of the fiscal consolidation program imposed on the country in its 78-billion-euro bailout deal with the IMF and the European Union.

GDP is expected to shrink by 2.1 percent this year and by 1.5 percent next year, with the jobless rate rising from 10.8 percent last year to 11.7 percent this year and 12.7 percent next year.

"Despite the short-run costs, strictly implementing consolidation measures is essential to rebalance the economy," the OECD said. "Sustainable public finances also require stronger potential growth and improved competitiveness, which should be fostered by structural reforms in labor and product markets and in the tax system," the agency added.

For the OECD as a whole, the agency predicted growth this year of 2.3 percent and 2.8 percent in 2012 as the global recovery gathers pace. However, it warned that high unemployment remains the "most pressing legacy" of the crisis.

"This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again," the OECD's secretary general, Ángel Gurría, said.