Spain Economy Likely Deteriorated Further in 2Q
07/01/2012| 06:45pm US/Eastern
NAVACERRADA, Spain--The Spanish economy likely deteriorated further in the second quarter, but the government will take all necessary measures to ensure it meets this year's budget targets, Finance Minister Luis de Guindos said Sunday.
"Available second quarter data show a slightly bigger contraction" than in the first quarter, Mr. de Guindos said on the sidelines of a conference.
Spanish gross domestic product fell 0.3% in the first quarter from the fourth. In a report last week, Spain's central bank also said the contraction had likely deepened in the second quarter, citing declining confidence and tightening credit conditions caused by the country's sovereign debt crisis.
Earlier this month, the Spanish government was forced to ask for up to EUR100 billion in European Union aid to help recapitalize its banks, a move that sent the government's borrowing costs soaring to new euro-era highs.
Nonetheless, Mr. de Guindos struck an optimistic tone, saying the recent E.U. agreement on a series of measures to calm euro-zone debt markets and shore up the region's banking system should bolster confidence. "In the coming quarters we will see a stabilization" in Spain's economic situation, he said.
On the budget front, the finance minister pledged his government will take all necessary measures to ensure it meets this year's target of a budget deficit equal to 5.3% of GDP, a significant reduction from 8.9% of GDP last year. Budget data last week cast doubt on this target, as it showed a fall off in tax revenue in the first five months as a result of the weak economic situation.
Prime Minister Mariano Rajoy recently hinted the government would take new austerity measures and budget ministry officials have said they are studying raising value-added-tax rates, something the European Commission has been pressuring Spain to do.
"The government will do everything in its power to make sure budget targets are met," Mr. de Guindos said.
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