Research Dept. News
|
|
|
|
Monthly Report, num 351 - November 2011
|
|
|
Spain: overall analysis - Public sector
|
|
|
|
|
The deficit target looks difficult to achieve
|
|
The increase in the write-down of Greek public debt, up to 50%, affects European sovereign debt markets.
|
|
The European public debt markets continue to be the focus of international attention and the main question is still the situation of the Greek economy and its ability to stabilize its public debt. In this respect, discussions on the need to raise the write-down of Greek debt above the 21% initially planned are keeping the European financial sector on edge. However, it seems that the main European leaders have finally decided to take far-reaching measures. The summit at the end of October is expected to define the conditions for recapitalizing Europe's banks and the mechanism to allow the EFSF to increase its lending capacity to avoid contagion.
|
|
|
|
These measures aim to restore investor confidence in the public debt markets; something that has already happened in Ireland, for example. The extensive correction in fiscal imbalances and the good performance of the Irish economy have reduced pressure on its public debt over the last three months. For Spain, on the other hand, rating agencies once again downgraded its public debt rating in October due to increased doubts regarding the solidity of its economic recovery. This increased pressure on the risk premium for Spanish debt, with this rising above 350 basis points during the second half of October.
|
|
|
Public sector borrowing remains at 9.2% of GDP in June.
|
|
Moreover, there is the risk that the public deficit will not achieve the target set by the government for 2011. Data for the quarterly non-financial accounts of public administrations show that borrowing stagnated in the second quarter of 2011. As can be seen in the graph above, cumulative public borrowing over the last year accounted for 9.2% of the gross domestic product (GDP) in June. This represents a correction of just one tenth of a percentage point compared with the level at the end of 2010. In fact, if we compare the figures from the first half of this year with the previous year, we can see that borrowing increased slightly, up to 41.4 billion euros.
|
|
Lower public investment and wage cuts reduce public spending by 5.3 billion euros during the first six months.
|
|
This stagnation is partly due to the inertia shown by some items of public spending. One clear example is social benefits, including unemployment benefit and retirement pensions, as well as social transfers in kind, principally education and health. In both items we can see that, in spite of halting its upward trend of previous periods, spending has hardly fallen during the first half of the year. This contrasts with the fall in spending on gross capital formation (investment) and payroll, a result of fiscal adjustment measures. This improvement, of 5.3 billion euros compared with the first half of 2010, was nevertheless neutralized by the higher interest paid on public debt and the lower revenue from taxes on production.
|
|
|
|
The public deficit seems unlikely to achieve the target of 6.0% of GDP set by the stability programme for 2011. Available figures to date present the fiscal imbalances of the autonomous communities as one of the main reasons for not achieving this target. The trend in the central government's accounts in the third quarter is not very encouraging either. The cumulative cash deficit between January and August fell by 9.1% year-on-year to 33.7 billion euros. Should this rate of shrinkage continue up to the end of the year, the imbalance would exceed the target set by the government by three tenths of a percentage point of GDP, the main reasons for this being the weak growth in taxes and the rise in financial costs.
|
|
We have revised our deficit forecast for 2011 upwards to 7.5% of GDP.
|
|
As a consequence, our public deficit forecasts for 2011 have been revised upwards to 7.5% of GDP, 1.5 percentage points above the fiscal consolidation target. Consequently, and given the postponement of the privatization of the state lottery and the airports of Barcelona and Madrid, we expect Spain's public debt to reach 69.7% of GDP in the same period. However, in spite of Spain's public deficit perhaps not achieving its target for this year, the level of debt will remain at a relatively low level compared with the main countries in Europe.
|
|
|
You can susbcribe now to be nofified by email every time the Monthly Report is updated in the internet.
|
All documents are in Adobe Acrobat format (PDF).
To view a document in PDF format you need the Adobe Acrobat Reader. If you don’t have it already loaded on your computer, you can donwload it now.
|
|
Direct link to the Research Dept. in your mobile
We'll send you a free SMS with the link
|
