The Bank of Spain just sent a stark message. In its annual update of economic forecasts, it estimates Spain's economy will shrink 1.5% in 2013 - that is three times as bad as the official government forecast of -0.5%. As Reuters reports, this is even worse than 2012's 1.4% contraction as the bank notes that, Spaniards "remain immersed in a process of deleveraging...and families have seen a notable shrinking of income." The GDP estimate is around consensus which was roundly ignoring the Spanish government's 'lying' optimism but under the cover of the Cyprus debacle, the Spanish have been pushing to ease their deficit restrictions as the deficit is expected to reach 6% in 2013 (well above the 4.5% target set by the EU). With unemployment expected to rise over 27.1%, we suspect youth unemployment will once again take center stage as the European Union's scariest chart.
Spain's economy will sink deeper into recession this year, the Bank of Spain said on Tuesday, sending a stark message to the government as it prepares to revise its own growth forecast.
In its annual update of economic forecasts, the central bank said it saw Spain's economy shrinking by 1.5 percent in 2013 following a 1.4 percent contraction last year as austerity continues to exacerbate the effects of a burst property bubble.
The central bank's new estimate is well below the official forecast for a 0.5 percent contraction in GDP, although the government is widely expected to revise the 2013 figure downwards in April.
"Private agents remained immersed in a process of deleveraging, families have seen a notable shrinking of income, public accounts continue on their path toward sustainability and residential investment has not yet hit bottom," the bank said.
Unemployment is likely to hit another record high of 27.1 percent in the course of the year, the central bank said, up from a current 26 percent, one of the highest rates in the euro zone.
The bank also said the public deficit would reach 6 percent of gross domestic product for 2013, above targets set by Europe of 4.5 percent of GDP this year, and 5.9 percent of GDP in 2014.