Towards a 10-year crisis

Bank of Spain shatters Rajoy's forecasts, predicts 17.3% unemployment in 2018

Dani Sánchez Ugart
2 min
Cap als 10 anys de crisi

MadridThe macroeconomic forecasts of Mariano Rajoy's government are too optimistic, both for their predictions of economic growth as well as for public administration deficits. This is, at least, the Bank of Spain's opinion, which on Tuesday published its review of a set of macroeconomic forecasts.

The institutions led by Luis Maria Linde believes that Spain will fail to meet the deficit targets negotiated with Brussels, which call for reducing the imbalance of public accounts to below 3% in 2017, which would mean that Spain would no longer be under close financial scrutiny by Europe. This deadline is already an extension with respect to the previous commitment, which called for Spain to leave the special protocol for excessive deficit this year. The Bank of Spain, however, believes that in 2017 the public administration deficit will be 3.4%, and won’t drop to 2.9% until 2018, when the administration forecasts a deficit of only 2.2%.

The commitment negotiated with Brussels is to achieve a deficit of 2.5% next year, even though Rajoy's caretaker government expected to achieve only 2.9% without additional measures, which must be decided by incoming Spanish government. Linde disagrees with these forecasts, and extends the reduction of the shortfall in public finances by one year.

This year the gap will also be much larger than what was negotiated with Brussels, which is 3.6%. Instead, Spain will have a deficit of 4.1%. This is a reduction of three-tenths with respect to the previous forecast by the Bank of Spain in March, done before the coercive measures approved by the administration were rolled out, which involve a €4bn cut attributable in equal parts to the central administration and the regional governments. But they would still fail to comply with the requirements set by Spain’s European partners, who are still wavering on whether or not to fine Spain for its continued failure to meet its commitments for fiscal stability.

The Bank of Spain is also forecasting a more pronounced slowdown than Rajoy will admit, after he re-did the economic forecasts in March. Despite the fact that both sets of forecasts expect the economy to grow by 2.7% in 2016, they differ in following years, and while the Bank of Spain believes that GDP in 2017 will rise by 2.3%, the administration is hoping for 2.4%. In 2018 the economy will grow by 2.1% according to the Bank, which predicts that the slowdown will continue, while Rajoy believes that 2018 growth will increase by 2.5%.

Linde also criticizes Rajoy's forecasts on job creation from 2017 on, which the acting president has turned into promises for his election campaign. This year the unemployment rate will be lower than anticipated by the administration, at 19.7% rather than 19.9%. But as the legislative term moves forward, the reduction will slow to 18.3% in 2017 (and not the 17.9% indicated by Rajoy) and to 17.3% in 2018 (instead of 15.8%).

stats