MADRID: Spain said its economy would post meagre growth this year and cut its forecasts for the next two years on the likely impact of higher interest rates and oil prices.
The economy is likely to grow in line with Madrid's original forecast of 1.3 percent this year, Economy Minister Elena Salgado said. The government said it expects the economy to expand by 2.3 percent in 2012 and 2.4 percent in 2013, trimming earlier forecasts of 2.5 percent and 2.7 percent. In 2014 it sees growth of 2.6 percent.
Spain exited an 18-month recession at the start of last year but growth has stuttered since then. Economists and the central bank doubt the economy can grow as much as the government expects.
The government raised its estimate for unemployment this year to 19.8 percent from 19.3 percent.
The European Central Bank is widely expected to raise interest rates from a historic low of 1.0 percent on Thursday, with rates expected to hit around 1.75 percent by year-end.
BOND YIELDS FALL
Spain has distanced itself from other highly indebted countries at the fringes of the euro zone, with the key risk premium between the country's ten-year bonds and benchmark bunds falling close to a two-month low on Wednesday around 179 basis points.
That contrasted sharply with the spread over Portuguese bonds, which stood at around 544 bps after an auction of Treasury bills saw financing costs soar and the country edge closer to calling for external help.
While Portugal has so far resisted any bailout or loan, Salgado said European financing is available if the country asks for it.
As for Spain, it still needs its economy to pick up speed in order to meet ambitious and 'unconditional' deficit cutting targets.
Last week the Bank of Spain forecast the economy to grow by 0.8 percent this year, and 1.5 percent next year. The government has said it will take extra measures to make sure it hits deficit targets should they veer off course.
Comments
Comments are closed for this article.