Rajoy Plans to Cut Spain’s 2013 Growth Forecasts Amid EU Slump

Spanish Prime Minister Mariano Rajoy said he expects to cut his forecast for economic growth this year, bowing to pressure from the European Union and the International Monetary Fund.

Spain’s economy will probably contract by more than the government’s forecast of 0.5 percent as recession in the euro region curbs demand for the country’s exports and spending cuts damp the domestic economy, Rajoy told the parliament in Madrid today. The euro-zone economy will shrink by 0.3 percent in 2013, the EU said last month.

“All this can force us to modify our forecasts,” the premier told lawmakers. “I think we will change our forecasts.”

The Spanish economy is suffering from the sixth year of an economic slump that has pushed unemployment to a record 26 percent. The pace of contraction in service industries accelerated in February from the previous month, according to a survey of companies published March 5.

The IMF forecast the Spanish economy will shrink by 1.5 percent this year while the EU expects a 1.4 percent contraction.

“These forecasts have to be particularly conservative to make budget deficit-path projections credible,” Economy Minister Luis de Guindos told reporters outside the chamber.

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