The IMF on Wednesday said it had revised its economic growth forecast for Spain slightly downward for this year, predicting that the recession in 2013 would be wider than in 2012, with Spain missing out on what is expected to be a gradual global upturn.
In an update of its World Economic Outlook, the Washington-based agency said it now expects GDP to shrink 1.5 percent this year, against a forecast contraction last fall of 1.4 percent. The government expects output to shrink by only 0.5 percent, a figure at odds with most experts. The IMF estimated activity shrank 1.4 percent last year, which compares with a figure released Wednesday by the Bank of Spain of 1.3 percent.
By contrast, the International Monetary Fund expects the global economy to grow 3.5 percent this year, while activity in the euro area is forecast to contract by 0.2 percent.
Spain is expected to see a timid recovery in 2014 when the IMF estimates output will rise 0.8 percent, well behind growth of 4.1 percent forecast for the global economy and 1.0 percent for the euro area.
Earlier Wednesday, the Bank of Spain said the government’s efforts to rein in the public deficit took its toll on activity in the last quarter of 2012, pushing the economy deeper into recession.
The current recession, the second in three years began in the last quarter of 2011. It worsened toward the end of the year as a result of the elimination of the Christmas bonus payments made to civil servants and the disappearance of one-off purchases by consumers ahead of the introduction of a hike in valued-added tax at the start of September.
As a result, GDP contracted by 0.6 percent in the period October-December from the previous three months when it was down 0.4 percent. On an annual basis, output was down 1.7 percent in the fourth quarter. In its latest economic bulletin, the central bank also confirmed that activity shrank 1.3 percent for the whole of 2012, a figure that had been flagged the previous day by Economy Minister Luis de Guindos.
The heightened downturn in the fourth quarter was the result of weak domestic demand, which contracted 1.9 percent on a quarter-on-quarter basis and declined 4.6 percent from a year earlier. Net external demand -- exports minus imports – made a net contribution to growth of 1.4 percentage points in the quarter as imports eased, and 2.6 points for the year as a whole. However, export growth slowed toward the end of the year because of the downturn in the euro zone.
While borrowing costs eased for companies in the wholesale markets, bank rates remained high for households, which further weighed on their spending conditions because of lower disposable income and high unemployment.
“Household consumption posted negative figures throughout the year, though more forcefully so in the final month, owing to the impact of fiscal consolidation measures,” the bank said.
The National Statistics Institute (INE) is due Thursday to release its Active Population Survey (EPA) for the fourth quarter, which is expected to show that the jobless rate has risen to over 26 percent.
Wage costs last year declined 0.6 percent per worker, largely as a result of pay cuts in the public sector, the Bank of Spain report said.