Spain to Miss Deficit Target in 2016 as Growth Slows

  • Nation to require extra year to cut deficit below 3% of GDP
  • Budget miss may cast doubt over abilities of government

Spain is set to miss its deficit target as a cooling global backdrop holds back economic growth, Acting Economy Minister Luis de Guindos said Tuesday as he presented the budget plan to parliament.

The deficit will be 3.6 percent of gross domestic product this year, missing a target of 2.8 percent. That means Spain would require an extra year to narrow the gap to below the 3 percent threshold set by officials in Brussels. In 2017, the deficit is seen at 2.9 percent of output.

Spain could face sanctions by European authorities after missing its goal of 4.2 percent last year, coming in at 5.1 percent instead. The failure to comply in an election year has called into question the caretaker government’s claim that it is best placed to manage the economy and safeguard the recovery following an inconclusive election in December.

Speaking in Madrid, Guindos said the new projections are “prudent” and in accordance with those of the European Commission. He argued that slowing down the pace of deficit reduction by one year helps protect the recovery while complying with European rules.

“No one can call into question Spain’s fiscal efforts,” Guindos said. “The new budget plan will allow to reduce the deficit without putting the pace of growth at risk.”

In a separate press conference in Brussels, European Commission Vice President Valdis Dombrovskis said no decision about fiscal leeway has been taken yet.

Progress Halt

Growth is set to slow to 2.7 percent in 2016 -- down from a previous government estimate of 3 percent -- and to 2.4 percent next year. The Spanish economy grew 3.2 percent last year, the fastest pace in eight years, driven by household spending that benefited from rising consumer confidence and job creation.

The budget plan comes as lawmakers in Madrid face a May 2 deadline to form a government or be forced to hold new elections. So far, polls show the incumbent People’s Party maintaining its lead, but is still short of a majority.

Commenting on Spain’s fiscal policy, the European Central Bank said on Tuesday that “the needed progress on fiscal consolidation has come to a halt, with part of the structural adjustment implemented in earlier years being reversed.”

While the ratio of government debt to GDP decreased “slightly” last year, “its high level remains a burden for the economy,” it said after a joint review of Spain’s economic progress with the European Commission.

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