Spain cuts this year's economic growth forecast, ups deficit

Credit: REUTERS/HEINO KALIS

The Spanish government cut this year's economic growth projection to 1.6% from 1.8% on Tuesday, expecting a sharper slowdown after a 2% expansion in 2019, and raised its budget deficit target to 1.8% as a result.

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MADRID, Feb 11 (Reuters) - Spain's government cut its economic growth projection on Tuesday and raised unemployment and deficit forecasts to account for a sharper slowdown, a move that could raise concern in Brussels.

The Spanish economy - the euro zone's fourth largest - has consistently outperformed much of Europe since it emerged from a five-year slump in 2013, and the 2020 growth forecast still points to growth well above the projected 1.1% growth rate for the 19-nation currency bloc.

The new left-wing government in Madrid forecast 1.6% growth this year, down from a previous 1.8% forecast.

The new deficit goal of 1.8% of gross domestic product, though below last year's estimated 2%, is higher than previous forecasts and marks further divergence from a trajectory agreed with the European Commission two years ago.

Spain is no longer bound by the Commission's excessive deficit procedure, but the EU executive still has the last word in giving a green light or not on member countries' budgets.

It had earlier voiced concerns that Spain could fail to cut the structural deficit by 0.65% required of it this year.

Economy Minister Nadia Calvino told a news conference the government was in talks with the European Commission over its new budget data and stressed that it was still committed to reducing deficit and debt levels.

"The government's commitment to the European rules is clear," she said.

"We are approving stability goals that will guarantee that Spain will keep on reducing its deficit and its sovereign debt at a pace that doesn't hurt growth or job creation."

The government expects growth to further slow down to 1.5% in 2021 before recovering to 1.6% in 2022 and 1.7% in 2023. The deficit is likely to narrow to 1.5% in 2021, 1.2% in 2022 and 0.9% in 2023, Calvino added.

Budget Minister Maria Jesus Montero said the debt-to-GDP ratio would gradually fall to 91.7% in 2022 from an envisaged 94.6% in 2020, and then to below 90% afterwards.

The ripple effects of the U.S.-China trade war and other factors such as Brexit and more recently the new COVID-19 coronavirus in China have prompted an economic deceleration in Europe likely to continue well into 2020.

The anticipated slowdown in Spain will curb the decline in the unemployment rate experienced over the past five years, Calvino said.Since Spain emerged from a severe crisis in 2013, unemployment has receded from a peak of nearly 27% early in that year to 13.78% in late 2019.

The government now expects the 2020 rate to plateau at 13.6% at the end of the year.

(Reporting by Belen Carreno Writing by Inti Landauro Edited by Andrei Khalip, Ingrid Melander and Mark Heinrich)

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