Spain today cut its 2012 growth forecast to 2.3% from 2.5% but maintained its prediction that its public deficit will drop to 4.4% of output that year from 6% in 2011.
For this year, the government kept its forecast for growth of 1.3%, Finance Minister Elena Salgado said. 'The motor of growth this year is going to be external demand,' she said.
Spain is battling to douse market fears that it will follow Greece and Ireland in seeking a multi-billion euro bail-out from the IMF and the EU by slashing spending and introducing market reforms to boost growth.
The Spanish economy contracted 0.1% in 2010 after shrinking 3.7% in the previous year following the collapse of a property boom that had fueled growth for more than a decade.
Spain has no need of financial aid - IMF chief
Spain has taken the correct financial steps to reassure the markets and had no need of international financial aid, IMF chief Dominique Strauss-Kahn said in comments published today.
'We have not received any request for help from the Spanish government,' Strauss-Kahn told the Spanish daily El Pais.
'I don't believe that the Spanish government needs any type of financial aid,' he said in an interview that he also gave to the Washington Post and Italy's La Repubblica.
'I believe that the policies that the Spanish government has implemented, as much on the fiscal side as in the reform of pensions, the labour market or in banking, are the correct policies,' he continued.
'And what I see is that over the last few months Spain has been put in the same bag as other countries, such as Greece, when they are clearly not in the same situation. The markets are responding and what should be done is being done. If is difficult for the country and for the government to do the right thing but it is being done,' he said.
Strauss-Kahn's vote of confidence will come as a welcome boost for Spain's embattled government. The markets are still sceptical that Spain, which is struggling to emerge from the economic crisis that hit it in 2008, can get its public accounts in order and relaunch its economy.
On March 10 Moody's sliced Spain's long-term credit rating by a notch to 'Aa2' and warned it may do so again. It expressed scepticism that the government had done all it could do to improve public finances and restructure its shaky banking network.
On March 24, it downgraded the credit ratings of 30 Spanish banks, warning that the government might not be ready to write a blank cheque for every troubled bank. The three biggest Spanish banks - Banco Santander, BBVA and La Caixa - escaped any action.
Then on March 30, Spain's central bank warned that the country would miss key public deficit targets this year and in 2012. It also warned of slower-than-expected growth ahead.
Spain's savings banks are still struggling under the weight of loans that turned sour after the 2008 property bubble collapse. Their plight has fed fears the country could follow Greece and Ireland in needing an EU-IMF bail-out.
The Spanish economy contracted by 0.1% in 2010 after shrinking 3.7% in 2009. Spain along with bailed out Greece and Ireland were the only euro zone economies to shrink in 2010. While government forecasts that this year will see growth of 1.3%, the IMF figure is 0.6% and the OECD's is 0.9%.
One of the country's most serious problems, however, is unemployment, which at the end of 2010 was running at 20.33%, the highest in the OECD countries.
