Spain on Track to Meet Budget Targets Says Economy Minister; Data Strongly Suggests Otherwise

On September 16, Spain's economy minister,  Luis de Guindos, said Spain on Track to Meet Budget.

Spain is on track to meet the 2013 budget deficit target it agreed on with its European Union partners and should emerge from recession before the end of the year, the economy minister said on Monday.

After the financial crisis burst Spain’s construction bubble in 2008, “no doubt 2014 will be the first year when Spain will have some recovery,” the minister said.

Given the depth of Spain’s recession, the European Commission agreed in May to give Madrid more time to reach its budgetary targets. Mr. de Guindos said he expected Spain’s deficit to fall to the new target of 6.5 percent of gross domestic product — rather than the initial target of 4.5 percent — from 7 percent last year.

Although officials from the International Monetary Fund and other creditors started another review of Spain’s banking progress on Monday, Mr. de Guindos suggested that “Spanish banks don’t have an important capital need,” implying that Spain would not require an extension of its bank bailout.

How many lies and distortions can one man present in a few short paragraphs?

If by some miracle Spain meets this year's target, it is only because the target changed 4 times in the past two years.

Yet, I still have to ask: how likely is that?

Spain Budget Deficit Soars

On September 17, Dow Jones Business News reported Spain Budget Deficit Soars

Spain's government said late Monday the country's budget deficit stood at 5.3% of gross domestic product in the first seven months of the year, an indication that the euro zone's fourth-largest economy may miss its deficit target for the fourth consecutive year.

Spain is looking to bring its budget deficit to 6.5% of GDP this year, down from 10.6% last year. The target, set by the European Union Commission, was already relaxed earlier this year from a previous 6.3% of GDP, but many economists say even the easier target may be hard to attain, as the economy was in recession at least until the second quarter, and only moderate economic growth is anticipated in the second half, which should keep tax receipts at low levels.

Just Monday, think tank Funcas said 19 economists surveyed were expecting, on average, that the economy will grow 0.1% in the third quarter from the second, and Spain will post a budget deficit of 6.7% of GDP for the full year. The economists surveyed are also expecting that Spain will miss next year's deficit target, of 5.5% of GDP.

This is important because a string of large deficits has driven Spain's government debt to the highest level in over a hundred years. Last week, the country's central bank said debt stood at 92.2% of GDP as of June--well above the year-end target of 91.4% of GDP.

This reinforces the view held by many private sector economists, and the International Monetary Fund, that Spain's government debt will rise significantly above 100% of GDP before it peaks, despite government assurances to the contrary.

Spain's Budget Deficit €54 Billion Through July

Via translation from Guru's Blog, please consider Spain's Budget Deficit Rises to €54 Billion Through July.

Let's try not to lose the debt and deficit data since our politicians have a special ability to change forecasts as if nothing had happened.

The deficit totaled €54.293 billion in the first seven months of the year, and representing 5.27% of GDP against a target of 6.5% set for the full year, according to the latest data released Monday by the Ministry Finance and Public Administration.

The odds of meeting the deficit target, barring last-minute window dressing is quite low.

Total government debt is €947.184 billion, a new record. The ratio of public debt to GDP level is 92.6%, according to the Bank of Spain.

Recall that in September 2012, the government forecast for year-end 2013 was debt-to-GDP ratio 90.5%. Unless miracles, we will be well above that figure.

By the way, the total debt of €87.660 billion in short-term securities matures within one year.

Is Spain going to meet even four-times reduced targets? I highly doubt it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com