Tomas Rhys Edwards for Global Research at the bank said that Spain has undergone a large fiscal effort this year, relative prices and the current account are adjusting, and a few ambitious reforms have been passed. But 2013 feels all too familiar. He continued to say that most of the European Commission recommendations on reforms are the same as in 2012, with similar fiscal targets and revisions, and we expect little deficit adjustment in 2013 vs 2012.
His concerns include new rounds of provisioning and recapitalization in the banking sector, although on a much smaller scale than in 2012. In his teams view, all this is a sign of how difficult the adjustment in Spain remains and the challenges that the economy faces in boosting trend growth and ensuring debt sustainability.
Risks to their outlook biased to the downside in 2014
Most of the fiscal adjustment is yet to take place and we should see more austerity measures announced before October, which poses clear downside risks to our already weak growth outlook for 2014. If adjustment is badly designed, it could delay the recovery even further.
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