The situation in Spain took another sharp turn for the worse. Employment losses are the greatest since 2009, tax revenue is declining, the deficit is increasing and the IIF wants economically insane tax hikes.
GDP Poised to Plunge, Deficit Poised to Rise
El Economista reports IIF believes that the Spanish economy will contract by 2% in 2013.
The Institute of International Finance (IIF) believes the Spanish economy contraction will accelerate to register a gross domestic product (GDP) decline of 2%.
“The decline in GDP seems likely to accelerate to 2% in 2013 after 1.4% in 2012, as high unemployment, tight monetary conditions and current lower wages further reduce domestic spending and weak demand contain domestic exports,” said the IIF in a report on the eurozone.
The agency believes that this growth outlook “much weaker” have made the agreed deficit targets for 2013 and 2014 are “unreachable”, and believes that this year will close above 6%.
The IIF notes that the 2013 Budget predicted that the deficit falls to 4.5% of GDP this year down and 3% in 2014. “However, these growth forecasts for this year especially, seem unlikely,” the report says.
In the current context, tax revenues will be lower than expected and that social spending will increase as a result of high unemployment. This will bring the deficit back above 6% of GDP, even if the government implements all the measures it has promised.
It warns the expiration of temporary tax increases such as income tax hikes approved by the Government in 2012, will cause the deficit to rise again in 2014 to 6.7%.
To ensure greater deficit reduction in 2014, the government needs to extend temporary tax increases more than expected or identify other measures to compensate their withdrawal.
Decline in Manufacturing Accelerates
The Markit Spain Manufacturing PMI shows Decline in manufacturing production accelerates in March.
Faster falls in output and new orders
Sharpest decline in employment since December 2009
Input costs decrease for first time in eight months
March saw an accelerated deterioration in business conditions in the Spanish manufacturing sector,
with output, new orders and employment all falling at faster rates than in February. This contrasted
with business conditions coming closer to stabilisation earlier in 2013.
The seasonally adjusted Markit Purchasing Managers’ Index dropped to 44.2 in March, from 46.8 in the previous month. This was the lowest reading since October 2012, and represented the twenty-third successive deterioration of business conditions in the sector.
New orders fell at a steeper pace in March, with the latest decline the fastest since November 2012.
New export orders also decreased, ending a three-month period of growth. The rate of job cuts also
quickened, and was the steepest since December 2009.
Commenting on the Spanish Manufacturing PMI ® survey data, Andrew Harker, economist at Markit and author of the report, said: “The March PMI data for Spain make grim reading for the manufacturing sector. Moreover, the latest figures have brought an end to the recent period of moderating declines, and cast doubt on any hopes of recovery for the rest of the year. The employment index again highlighted the extent of the problems currently afflicting the manufacturing sector and the wider Spanish economy, with jobs cut at the fastest pace in more than three years.”
The IIF wants Spain to hike taxes (extend temporary hikes if you prefer). Either way, the IIF is totally nuts. How long is Spain going to put up with this?
Mike “Mish” Shedlock