PARIS (MNI) – The International Monetary Fund has further
downgraded its outlook for Spain’s economy in 2013, putting the IMF even
more at odds with the Spanish government, which is holding to its view
that the economic contraction in 2013 will be much lighter than this
year.

The IMF forecast on Monday that Spain’s economy will shrink by 1.3%
next year, more than double the 0.6% decline it had projected on July
17. The IMF subsequently revised that estimate to -1.2% in a so-called
Article IV review that was issued on July 27.

Spain’s government, meanwhile, said in its 2013 budget released on
September 27 that it was sticking to its forecast that the economy would
only decline by 0.5% in 2013 after a 1.5% drop this year.

“For 2013, we foresee a soft economic recession,” Budget Minister
Cristobal Montoro said at press conference announcing the budget.

Private economists widely consider the government’s 2013 forecast
not to be credible. Bank of Spain Governor Luis Linde said in testimony
to parliament last week that the figure was “certainly optimistic in
comparison with the outlook shared by the majority of international
organizations and analysts.”

The European Commission’s economic and monetary affairs chief Olli
Rehn has reportedly told Madrid that the figure is excessively
optimistic, according to press reports. A Commission spokesperson told
MNI in an e-mail that Brussels would not comment on Spain’s budget until
November 7, when the Commission’s autumn economic forecasts will be
issued.

Madrid’s economic growth assumptions will a key element, along with
tax increases, spending cuts and economic reforms, in the Commission’s
assessment of whether Spain has done enough to reach its budget deficit
targets of 6.3% of GDP this year, 4.5% next year and 2.8% in 2014.

That assessment will figure importantly in the conditions that
Spain will have to accept if and when it does decide to request aid from
Europe’s new permanent bailout fund, the European Stability Mechanism,
to stabilize its borrowing costs.

–Paris newsroom, +33142715540; jduffy@marketnews.com

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