The Spanish government on Friday downgraded its economic forecasts and now sees a wider economic contraction for this year as it struggles with severe recession and harsh austerity.
The government led by Prime Minister Mariano Rajoy forecast 1.3 percent decline in gross domestic product this year. The projection is far worse than the earlier forecast for a 0.5 percent shrinkage.
The latest set of forecasts from the government showed the ailing economy returning to growth in 2014 by registering an expansion of 0.5 percent. "2014 will be a year of recovery," Economy Minister Luis de Guindos said.
Releasing a fresh round of economic reforms, the government said the budget deficit would be 6.3 percent of GDP this year, which is bigger than the 4.5 percent seen earlier. The budget gap is seen falling to 2.7 percent by 2016, which is below the EU ceiling of 3 percent.
The government expects unemployment rate to reach 27.1 percent this year and then ease to 26.7 percent in 2014. Data released by the statistical office INE showed yesterday that the unemployment rate climbed further to 27.16 percent in the first quarter of 2013 to set a new record.
The Bank of Spain on Monday forecast a 0.5 percent sequential decline in the gross domestic product for the first quarter, citing continued weakness in demand. In the fourth quarter of 2012, the economy had shrunk 0.8 percent from the previous three months.
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