Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Spain
Against a backdrop of renewed uncertainty as to Spain’s financial and economic situation, the Spanish government has
unveiled its plan to reduce the fiscal deficit to 5.3% of GDP this year compared with 8.5% in 2011. The 2012 budget contains
austerity measures representing EUR 27 billion. It ought to enable the central government to meet its budgetary targets but
the regions will need to make additional efforts. The across-the-board austerity throughout the eurozone will inevitably
result in recession this year, estimated at around 2%. Although painful, the present period of fiscal rebalancing is
necessary to absorb the excesses of the property market bubble. Over the medium term, the implementation of structural
reforms will lead to in-depth changes for the Spanish economy.
Austerity, a necessary evil
Activity: inevitable recession
The Q4 2011 performance (-0.3% q/q) gives an indication of what can be
expected in 2012. The entire Spanish economy has been caught by the need
to clean up the balance sheets, severely damaged by the bursting of the
property market bubble. Property prices, which have dropped by nearly 20%
from their peak level, are likely to continue to slide right through the year. The
government’s austerity measures, together with wage moderation and the fall
in employment, will squeeze disposable household income.
Highly indebted (82% of GDP), households will have no choice but to cut back
on spending. Private consumption, which stagnated in 2011, is expected to fall
by more than 3% in 2012. Similarly, the mediocre outlook for demand and
earnings will prompt businesses to reduce their investment and their debt.
Lastly, public spending is also likely to be cut back significantly in order to
achieve the targeted deficit reduction. All in all, we expect domestic demand to
fall by close to 5%.
Under the dual effects of a fall in imports and growth in exports, foreign trade
is likely to cushion the decline in activity. However, exports will probably be
restricted by slow growth in Spain’s main trading-partner countries.
Overall, we expect a recession of close to 2% this year followed by a slight
rebound in 2013, which will not prevent an average annual GDP contraction of
around 0.5%.
Public finances: the government unveils its plans…
The upward revision to the 2011 fiscal deficit (to 8.5% of GDP compared with
6% initially forecast) has resulted in the target fiscal deficit for 2012 being
raised from 4.4% to 5.3%. As in 2011, Spain will therefore raise more debt
than initially planned this year. Although the fiscal deficit target has been
raised, the adjustment remains substantial, at 3.2 percentage points of GDP.
The Spanish government has recently disclosed the details of the measures
contained in the 2012 budget, which will be submitted to the Parliament for
approval on 26 April. With EUR 15 billion in savings already approved in
January, the new austerity measures bring the central government’s total
savings efforts to EUR 27 billion. Spending cuts account for EUR 15 billion,
with, in particular, a 16.9% cut in all ministers’ budgets. Tax hikes will account
for EUR 12 billion, in particular through the elim2.5% of GDP. These austerity measures should enable the central
government to achieve its target of reducing its fiscal deficit to 3.5% of GDP
compared with 5.1% in 2011. However, an even greater effort will be required
to meet the overall target of 5.3% of GDP set for the general government. The
Spanish government’s budget is based on a recession of 1.7% in 2012, which
implies that a reduction of 3 percentage points of GDP (around EUR 30 billion)
in the fiscal deficit requires austerity measures representing around 5
percentage points of GDP (EUR 50 billion).
…and looks to the regions
The remaining EUR 25 billion (2.5% of GDP) of additional measures to be
identified must be implemented by the regions, whose deficit target is limited to
1.5% of GDP. This may prove difficult. Regional government spending
represents around 30% of total public spending and is allocated mainly to
healthcare and education. This spending responds to medium-term investment
plans that have little downward flexibility. At the same time, the regions’
revenues have been particularly badly affected by the property market slump.
The resulting deficits are largely structural and will require a thorough
redefinition of budgetary policies throughout the country before they can be
reabsorbed. In this regard, the election results in Andalusia, where the
People’s Party (the governing party at national level) had expected to win,
have made the government’s task even more difficult. Although it obtained the
largest percentage of votes (40.6%), the People’s Party (PP) was unable to
take control of this region which has been governed by the Spanish Socialist
Party (PSOE) for the past 30 years. PSOE, which obtained 39.5% of the vote,
is expected to form a coalition with the United Left (IU), which obtained 11.3%
of the vote. Putting in place a harmonised budgetary policy will therefore be
more difficult than foreseen even though the PP has a majority in 11 of the 17
autonomous regions.
Structural reforms to prepare the future
Lastly, achieving a lasting turnaround in Spain’s public finances means
redefining the country’s growth model, whose past excesses currently weigh
heavily on public finances. This calls for structural measures to stimulate
competitiveness and employment. The Spanish government has, for example,
adopted a reform designed to increase the flexibility of the labour market.
Redundancy indemnities have been reduced from 45 days to 33 days per year
worked and the scope of collective wage negotiations has been reduced.
These measures will obviously not solve the unemployment problem in just a
few months. Unemployment could even increase in the short term as
businesses take advantage of the greater leeway for adapting to the economic
conditions. However, a more flexible labour market should facilitate a more
vigorous upturn in employment as soon as the activity allows it. In the end, the
main challenge in the short term is for the political authorities to preserve the
confidence of both the markets and the people by proposing a medium-term
crisis exit strategy that is both credible and ambitious.ination of tax loopholes for
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Spain
Against a backdrop of renewed uncertainty as to Spain’s financial and economic situation, the Spanish government has
unveiled its plan to reduce the fiscal deficit to 5.3% of GDP this year compared with 8.5% in 2011. The 2012 budget contains
austerity measures representing EUR 27 billion. It ought to enable the central government to meet its budgetary targets but
the regions will need to make additional efforts. The across-the-board austerity throughout the eurozone will inevitably
result in recession this year, estimated at around 2%. Although painful, the present period of fiscal rebalancing is
necessary to absorb the excesses of the property market bubble. Over the medium term, the implementation of structural
reforms will lead to in-depth changes for the Spanish economy.
Austerity, a necessary evil
Activity: inevitable recession
The Q4 2011 performance (-0.3% q/q) gives an indication of what can be
expected in 2012. The entire Spanish economy has been caught by the need
to clean up the balance sheets, severely damaged by the bursting of the
property market bubble. Property prices, which have dropped by nearly 20%
from their peak level, are likely to continue to slide right through the year. The
government’s austerity measures, together with wage moderation and the fall
in employment, will squeeze disposable household income.
Highly indebted (82% of GDP), households will have no choice but to cut back
on spending. Private consumption, which stagnated in 2011, is expected to fall
by more than 3% in 2012. Similarly, the mediocre outlook for demand and
earnings will prompt businesses to reduce their investment and their debt.
Lastly, public spending is also likely to be cut back significantly in order to
achieve the targeted deficit reduction. All in all, we expect domestic demand to
fall by close to 5%.
Under the dual effects of a fall in imports and growth in exports, foreign trade
is likely to cushion the decline in activity. However, exports will probably be
restricted by slow growth in Spain’s main trading-partner countries.
Overall, we expect a recession of close to 2% this year followed by a slight
rebound in 2013, which will not prevent an average annual GDP contraction of
around 0.5%.
Public finances: the government unveils its plans…
The upward revision to the 2011 fiscal deficit (to 8.5% of GDP compared with
6% initially forecast) has resulted in the target fiscal deficit for 2012 being
raised from 4.4% to 5.3%. As in 2011, Spain will therefore raise more debt
than initially planned this year. Although the fiscal deficit target has been
raised, the adjustment remains substantial, at 3.2 percentage points of GDP.
The Spanish government has recently disclosed the details of the measures
contained in the 2012 budget, which will be submitted to the Parliament for
approval on 26 April. With EUR 15 billion in savings already approved in
January, the new austerity measures bring the central government’s total
savings efforts to EUR 27 billion. Spending cuts account for EUR 15 billion,
with, in particular, a 16.9% cut in all ministers’ budgets. Tax hikes will account
for EUR 12 billion, in particular through the elim2.5% of GDP. These austerity measures should enable the central
government to achieve its target of reducing its fiscal deficit to 3.5% of GDP
compared with 5.1% in 2011. However, an even greater effort will be required
to meet the overall target of 5.3% of GDP set for the general government. The
Spanish government’s budget is based on a recession of 1.7% in 2012, which
implies that a reduction of 3 percentage points of GDP (around EUR 30 billion)
in the fiscal deficit requires austerity measures representing around 5
percentage points of GDP (EUR 50 billion).
…and looks to the regions
The remaining EUR 25 billion (2.5% of GDP) of additional measures to be
identified must be implemented by the regions, whose deficit target is limited to
1.5% of GDP. This may prove difficult. Regional government spending
represents around 30% of total public spending and is allocated mainly to
healthcare and education. This spending responds to medium-term investment
plans that have little downward flexibility. At the same time, the regions’
revenues have been particularly badly affected by the property market slump.
The resulting deficits are largely structural and will require a thorough
redefinition of budgetary policies throughout the country before they can be
reabsorbed. In this regard, the election results in Andalusia, where the
People’s Party (the governing party at national level) had expected to win,
have made the government’s task even more difficult. Although it obtained the
largest percentage of votes (40.6%), the People’s Party (PP) was unable to
take control of this region which has been governed by the Spanish Socialist
Party (PSOE) for the past 30 years. PSOE, which obtained 39.5% of the vote,
is expected to form a coalition with the United Left (IU), which obtained 11.3%
of the vote. Putting in place a harmonised budgetary policy will therefore be
more difficult than foreseen even though the PP has a majority in 11 of the 17
autonomous regions.
Structural reforms to prepare the future
Lastly, achieving a lasting turnaround in Spain’s public finances means
redefining the country’s growth model, whose past excesses currently weigh
heavily on public finances. This calls for structural measures to stimulate
competitiveness and employment. The Spanish government has, for example,
adopted a reform designed to increase the flexibility of the labour market.
Redundancy indemnities have been reduced from 45 days to 33 days per year
worked and the scope of collective wage negotiations has been reduced.
These measures will obviously not solve the unemployment problem in just a
few months. Unemployment could even increase in the short term as
businesses take advantage of the greater leeway for adapting to the economic
conditions. However, a more flexible labour market should facilitate a more
vigorous upturn in employment as soon as the activity allows it. In the end, the
main challenge in the short term is for the political authorities to preserve the
confidence of both the markets and the people by proposing a medium-term
crisis exit strategy that is both credible and ambitious.ination of tax loopholes for
No comments:
Post a Comment