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Spain’s Economic Siesta Turns into Hibernation

The Spanish government released a new budget proposal together with economic forecasts. The economy is expected to squeeze by 1.7% this year and unemployment is expected to rise to 24.3%.

These announcements come on the same day as fresh statistics show that the unemployment rate already stands at 23.3%. Spain is the euro-zone’s fourth largest economy, and there are little points of light here.

This is one of the things weighing on the euro. EUR/USD is now continuing to lower ground, after breaking below 1.3212. Next stop, 1.3150.  The move downwards continues a double top at 1.3486.

The small points of light are that the government’s estimations are worse than those of the European  Commission, which stand on 1%. They are also lower  than the Bank of Spain, which foresaw a contraction of 1.5%. The estimation is in line with that of the IMF.

So, there’s a chance that this government isn’t being too optimistic, as many governments tend to be. The optimism was left for 2013, with an projected deficit rate of 3%, like in the Maastricht treaty.

Regarding the deficit in 2012, Spain projects a deficit of 5.8%. This is higher than the rate demanded by the EU: 4.4%. Spain might feel confident in defying the tough standards of the EU. Even the Netherlands, which preaches other countries, is finding it hard to meet targets.

Spain returning to the limelight

Spain has quietly moved out of the limelight in recent months. Spanish 10 year bond yields dropped under 5%, thanks to the ECB’s LTRO, after rising above 6.5% before the elections in November.

In the beginning of the year, Spain rushed to raise money in the markets, enjoying the LTRO. It already reached around a third of the year’s funding, and paid relatively cheap prices.

It’s a bit hard to know if these gloomy projections are meant to lower expectations, or if also they will be missed.

Further reading:  5 Hurdles that Could Make Greece Bankrupt

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.