Public deficit nearly on target at 6.62%

But declining consumer prices raise the specter of deflation in Spain and Europe “We have reduced spending, but not by cutting back on elements of social cohesion” says minister

Speaking after the weekly Cabinet meeting, Finance Minister Cristóbal Montoro announced on Friday that the public deficit figure for 2013 came in at 6.62 percent of GDP, which represents around 66.2 billion euros

The combined budget shortfall registered last year by the state, regional and local governments, as well as Social Security, comes close to the target of 6.5 percent set by Brussels, being off course by around 1.2 billion euros.

Montoro explained that this figure could even end up below the EU target, given that statistics office Eurostat is reviewing the way GDP is calculated.

Regional governments posted a combined deficit of 1.54 percent of GDP last year, over their target of 1.3 percent. This is the smallest deviation on record since the economic crisis began in 2008.

Meanwhile, local governments managed a surplus of 0.41 percent, compared with their target of zero percent (a balanced budget). The state and Social Security’s combined deficit was 5.49 percent, above the objective of 5.2 percent.

“We have reduced spending in our country, but not by cutting back on the elements of social cohesion that befit a developed country,” said Montoro.

But regional governments have contained their soaring deficits precisely by cutting back on health and education services, which represent 80 percent of their expenses.

The government has until Monday to communicate these deficit figures to Eurostat.

The number is similar to the Bank of Spain’s forecast of 6.6 percent of GDP (which does not include the state’s financial aid to the banking sector). If confirmed, it will mean that the government only shaved 0.3 percentage points off the public deficit from a year earlier, when it was 6.9 percent.

Nevertheless, the reduction was achieved during a recession in which the economy contracted 1.2 percent.

Biggest drop in consumer prices in five years

Meanwhile, consumer prices fell again in March by 0.2 percent compared with the same period in 2013, according to a flash estimate released Friday by the National Statistics Institute (INE). While the figure is pending confirmation three weeks from now, it raises the specter of deflation.

The March figure is also the greatest decline in the consumer price index (CPI) since late 2009. Until now, the only drop had been registered in October 2013, when the CPI fell back 0.1 percent.

“This behavior is influenced by the lower price of food and non-alcoholic drinks, and also by organized travel, whose prices rose more in 2013 because of Easter,” the INE notes in its report.

Experts and political leaders are warning that low inflation is one of the main threats to an incipient recovery in Spain and Europe as a whole. The European economy commissioner, Olli Rehn, has said that “a long period with low inflation will harm the ongoing process to balance out the European economy.”

That is why Brussels and other institutions, including the International Monetary Fund and the Bundesbank, are urging the European Central Bank (ECB) to take action. The ECB will meet next Thursday to decide on interest rates.

Recomendaciones EL PAÍS
Recomendaciones EL PAÍS