Spain just unveiled its 2013 budget to Europe and the world.The reason everyone is watching: at this point, Spain submitting a bailout request to EU and ECB lenders is seen as the next big step in the euro crisis now that the ECB has laid out its bond-buying plan to help distressed euro-area member states contain funding costs.
The catch is that Spain has to meet political preconditions in order to qualify for such a bailout, and that means presenting a plan to reduce its outsized budget deficit and implement structural economic reforms.
Spain’s 2013 budget aims to do just that, but there’s one big problem.
The economic forecasts baked into the Spanish government’s budget projections are wildly unrealistic.
Specifically, Spanish budget minister Cristobal Montoro said today in the press conference introducing the budget that the Spanish government only expects GDP growth to decline a mere 0.5 per cent next year. A merciful recession.
As a result, Spain’s budget deficit targets also remain unchanged – 6.3 per cent of GDP in 2012 and 4.5 per cent of GDP in 2013.
But no one else really thinks Spain is going to escape 2013 with a simple 0.5 per cent decline in economic output. It’s just not going to happen.
BofA Merrill Lynch economists forecast -1.7 per cent GDP growth in Spain in 2013.
SocGen economists expect -2.2 per cent.
Citi economists expect -3.2 per cent.
Citi’s Jose Luis Martinez was pretty frank in making this point after the budget details were revealed. He said, “We see as too optimistic the macroeconomic assumption of 0.5 per cent recession for the next year. We see a scenario with a deeper recession and if this were the case, further spending cuts will be needed.”
And as the recession deepens, Spanish voters – who have taken to the streets this week to protest austerity measures – will only be more upset when they realise that the plan their government just sold the country is in no way sufficient to move Spain forward.
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