Spain Will...

Spain Will Remain In Recession Next Year, OECD Forecasts

By Angeline Benoit - May 22, 2012

Spain’s economy, the euro area’s fourth largest, won’t recover next year as government and private-sector funding conditions remain tight, the Organization for Economic Cooperation and Development said.

Gross domestic product will contract 0.8 percent in 2013 after shrinking 1.6 percent this year, the Paris-based OECD said in a report today. That compares with the International Monetary Fund’s forecast for 0.1 percent growth after contracting 1.8 percent this year.

Spain’s borrowing costs have jumped more than 100 basis points since Prime MinisterMariano Rajoy said on March 2 that the country will miss its 2012 budget-deficit target, approaching the 7 percent level that heralded bailouts in Greece, Ireland and Portugal.

“A further increase in the risk premium on yields of Spanish government bonds would raise private-sector funding costs and deepen the recession,” the OECD said.

Private consumption will fall 1.8 percent next year and government consumption 4.5 percent as a result of austerity measures and deleveraging in the private sector, the OECD said. Unemployment will rise to 25.3 percent, it said.

The OECD predicts the government will miss its 2012 deficit goal of 5.3 percent of GDP by 0.1 percentage point and its 3 percent target for 2013 by 0.3 percentage point. The nation’s debt load will rise to 81.1 percent of GDP this year and 84.1 percent in 2013 after 68.5 percent in 2011, it said.