Friday, January 16, 2009

Spain's economy will contract 1.6 percent this year and unemployment will jump to nearly 16 percent, the government predicted Friday in a desperately gloomy outlook for a country that had been one of Europe's great success stories.

This year the government will also run up a huge deficit equivalent to 5.8 percent of GDP, nearly double the 3 percent target set by the European Union, Finance Minister Pedro Solbes said.

The economy will start to recover in 2010, but vigorous growth will not return until 2011, he told reporters Friday after a Cabinet meeting at which a major revision of Spanish economic growth forecasts and other figures was presented.

"The panorama I have just described is a complex and difficult one," Solbes said.

Until now, even as economists and the OECD predicted negative economic growth in Spain in 2009, the government had insisted it foresaw at least moderate expansion.

That upbeat talk is over, at least for the time being.
Only a few weeks ago, Zapatero's government refused to amend the 2009 budget, whose macroeconomic were sunny, before passing it, even though virtually anyone asked them for it. Just as the financial crisis itself, which Zapatero was flatly refusing until it was too late. Now that the budget is passed passed, we have an utterly unrealistic budget, full of entitlements that are now binding because they're law.