Bank of Spain says country will fall back into recession in 2012

PanARMENIAN.Net - Spain's central bank on Monday, January 23 forecast the country will fall back into recession this year with a contraction of 1.5 percent, fueling concerns over the country's ability to rein in its debt.

The Bank of Spain said however it expects Spain's economy to make a modest rebound in 2013 with growth in gross domestic product (GDP) of 0.2 percent. It added that it estimates the economy to have grown by 0.7 percent in 2011.

The bank also blamed the slowdown on falling internal demand due to government austerity measures and high unemployment for the worsening economy.

The return to recession will make it harder for Spain, the eurozone's fourth largest economy, to meet its goal of slashing the public deficit to 4.4 percent of output.

Spain's new right-leaning government announced shortly after it was sworn in last month that the 2011 public deficit would come in at around 8.0 percent of GDP, way above the 6.0-percent target agreed with Brussels by the previous government.

It has announced spending cuts of 8.9 billion euros ($11.5 billion), and tax increases to bring in 6.3 billion euros, to reduce the deficit and make sure the country does not get dragged into the debt crisis mire that has already forced Greece, Ireland and Portugal to seek financial bailouts.

The government has vowed to implement further austerity measures but Finance Minister Cristobal Montoro has said the deficit target for this year should be changed to reflect the worsening economic picture.

Spain emerged only at the start of 2010 from an 18-month recession, triggered by the global financial crisis and a property bubble collapse, which led the jobless rate to balloon to 21.5 percent in the third quarter of 2011, the highest level in the industrial world, AFP reported.