Economic warning in Spain: Madrid cuts economic forecasts after EU bailout funds delay | Politics | News

 Economic warning in Spain: Madrid cuts economic forecasts after EU bailout funds delay |  Politics |  News

Varoufakis issues warning over ‘mediocre’ EU stimulus fund

The Bank of Spain announced on Tuesday that the country’s economy is expected to shrink 0.4% this quarter after two consecutive quarters of recovery due to restrictions imposed to tackle the third wave of COVID-19 infections. The bank lowered its growth forecast for the full year as the country waits for the EU Stimulus Fund.

After a record 11% drop last year, the central bank expects gross domestic product to grow 3.2% to 7.5% this year, with its central scenario pointing to 6% growth, compared with 6.8% in its previous forecast released in December.
In the first quarter, his forecast ranges from a contraction of 0.9% to an expansion of 0.4% from the previous three months, when Spain rose 0.4%, beating expectations.

Its central scenario is a contraction of 0.4%.

A spokesperson for the Bank said: “The impact of the third wave of the pandemic at the start of the year has cooled forecasts and postpones the resumption of economic activity into the second half of the year.”

Spain’s economic outlook dims due to delayed EU stimulus funds (Image: GETTY)

Spain’s economy struggles to recover without EU funds (Image: GETTY)

They added that the “reactivation” of business in March could still surprise positively.
Bank of Spain chief economist Oscar Arce told reporters: “In the second quarter we are clearly seeing positive growth. ”

He added that the Bank expects “a strong rebound” in the second half of the year thanks to the coronavirus vaccination campaign which is expected to see most restrictions lifted by the end of 2021.

Mr Arce also said the downgrade is due to ‘this weaker start to the year than we expected three months ago and also because we are seeing that next generation EU funds may not be not be deployed as quickly as we expected in December. . ”

Vaccine efficacy has allayed some of the uncertainty, but it still remains high, he added, also explaining that private consumption will boost this year’s rebound, with an increase likely to be 8.8% thanks to to savings accumulated last year.

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Slower-than-expected absorption of EU bailout funds this year is also expected to weigh on growth, the spokesperson said, but is expected to boost investment in 2022.

Next year, the bank predicted GDP growth to be 4.6-5.5% higher than its previous forecast of 3.9-4.8%.

Yet the tourism-dependent economy will not return to pre-pandemic levels until 2023, when foreign tourism is expected to return to its 2019 peaks.

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eu news stimulus fund coronavirus grants

News from the EU: Coronavirus Stimulus Fund grants by country (Image: EXPRESS)

It comes as the EU announced it would raise € 13 billion from the sale of five- and 25-year social bonds to fund its SURE unemployment program via a bank union later on Tuesday, with a demand from the investors of more than 81 billion euros, according to a memorandum of the leader seen by Reuters.

The five-year bond will raise 8 billion euros and the 25-year bond will raise 5 billion, according to the leader.

The deal is expected to round off EU funding for the first quarter, as it recently told investors in a presentation that € 13 billion was the maximum amount it had yet to raise in the quarter.

The EU is expected to raise an additional 13 to 14 billion euros in the second quarter before closing the financing of SURE, the presentation to investors said. Then it will move on to financing its much larger recovery fund of 750 billion euros.

On Monday, data showed that the European Central Bank (ECB) had halved its net bond purchases, after announcing at its March 11 policy meeting that it would step up its purchases as part of its program of emergency pandemic buying over the next quarter to help tackle rising bond yields.

On Tuesday, ECB chief economist Philip Lane said Europe was facing a difficult second quarter due to the rise in infections and the reintroduction of lockdown measures.

He played down the surge in ECB bond purchases last week because the weekly data could be volatile, but promised there would be a “consistent substantial increase” over a longer period.

It came after Dutch central bank governor Klaas Knot, seen as a hawk, pointed to the temporary nature of the increased buying on Monday.


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