Spain to meet deficit limit in 2018

MADRID, Dec 2, (AFP): Spain laid out its economic predictions Friday, pledging to drop its deficit below a EU-stipulated threepercent limit after several failed attempts while also tackling unemployment.

Finance Minister Cristobal Montoro outlined proposed tax rises to cut the deficit, including an increase in levies on alcohol and tobacco products.

He predicted that the deficit would fall to 2.2 percent of GDP in 2018, “below (the EU limit of) three percent.”

Already under intense EU scrutiny, Spain must cut its deficit from 5.1 percent to 4.6 percent of GDP this year, and to 3.1 percent in 2017.

Montoro acknowledged it was a tough task.

“To reduce it to 3.1 is without a doubt a big effort,” he said, adding this would involve an adjustment of around 16 billion euros ($17 billion).

Economy Minister Luis de Guindos, meanwhile, broached the sensitive subject of unemployment, which the conservative government is aiming to address after years of economic crisis.

Now significantly better compared to 2013 when it came close to 27 percent, Spain’s jobless rate is still the second worst in the European Union, after Greece.

Year

De Guindos predicted unemployment would come in at 19.6 percent this year, falling thereafter to 12.8 percent in 2019.

The conservative government of Prime Minister Mariano Rajoy, who took power in 2011, has long feted the progressive drop in unemployment, putting it down to a labour law reform adopted in 2012.

This reduced severance pay and introduced a new permanent contract with a one-year trial period.

This flexibility helped boost the car industry in Spain — the second carmaker in Europe after Germany — as well as jobs, with one million posts created in 2014 and 2015.

But thee vast majority of those posts are short-term and unstable contracts.

Part of the drop in unemployment is attributed to a fall in the working-age population, with the departure of immigrants and young Spaniards fleeing the crisis and looking for a better life elsewhere.

De Guindos on Friday maintained his prediction for growth, which is due to come in at 3.2 percent this year, and 2.5 percent in 2017 — one of the eurozone’s best performers.

Spain has benefited from a drop in the prices of petrol and interest rates and the depreciation of the euro.

But the central bank warns that these may all rise again next year, and that household and company spending, as well as exports, could dwindle.

In terms of Spain’s sky-high public debt, Montoro said it would come in at 99 percent of GDP in 2017, falling to 95.4 percent in 2019.