Spain’s deficit hit 10.6 percent of GDP last year, EU says

Spain posted the biggest public deficit within the European Union last year as a result of the EU bailout it was granted to clean up its banks. The task of taming the shortfall was exacerbated by the ongoing recession, which, the government acknowledged on Monday, could be up to three times deeper than it initially forecast.

The EU’s statistics office Eurostat estimates that Spain’s deficit last year came in at 10.6 percent. The second-biggest shortfall was posted by Greece at 10 percent followed by Ireland (7.6 percent) and Portugal (6.4 percent). Germany posted a surplus of 0.2 percent of GDP.

Without counting the bailout the shortfall in Spain’s accounts dropped from 9.4 percent in 2011 to 7.0 percent of GDP last year, when the government had targeted a figure of 6.3 percent.

The target for Spain’s deficit agreed with Brussels for this year is 4.5 percent of GDP, with the government committed to bringing the shortfall back within the EU ceiling of 3 percent of GDP in 2014. However, given the sclerotic state of the economic, Brussels is expected to grant the government more time to meet the 3 percent target. Whether it gets one or two years will depend on Brussels’ assessment of the government’s new macroeconomic scenario for the next three years and a new batch of reforms, which are expected to be unveiled this Friday.

In an interview with the Wall Street Journal published Monday, Economy Minister Luis de Guindos said the contraction in the economy for this year is expected to be revised to between 1.0 and 1.5 percent from an initial estimate of 0.5 percent. That would bring the figure closer in line with that of other experts. The IMF last week said it expects Spain’s GDP to shrink by 1.6 percent this year before growing 0.7 percent the following year. De Guindos said he expects “slight” growth in 2014.

De Guindos said the new reforms would put more emphasis on economic growth and less on deficit-reduction per se. As such, he ruled out further “significant” austerity measures, predicting that the impact of spending caps and the increase in value-added tax would have a stronger impact in coming years.

De Guindos said the government is aiming to achieve a balance between reducing the deficit and growing the economy, noting that one of the main concerns of international investors currently is the lack of economic growth.