The IMF has blown Spain's shaky economic forecasts out of the water and estimated the country would not be able to bring its public deficit back within the European Union ceiling of three percent of GDP until 2017, three years after the deadline agreed with Brussels.
The Washington-based organization's latest World Economic Outlook Report -- released on Tuesday in Tokyo, where it is holding its annual meeting -- indicated that the Spanish economy's performance next year would be the worst globally after Greece as the government's drastic austerity drive further undermines activity.
Faced with such a scenario, the IMF recommended that financially stressed euro-zone countries such as Spain and Italy should seek a bailout from the European Financial Stability Facility (EFSF) or its permanent successor, the European Stability Mechanism (ESM).
Only a year ago during its fall meeting the IMF was predicting Spain would return to the path of growth in 2013, with GDP advancing 1.8 percent. Now it is forecasting a contraction of 1.3 percent, almost triple that of the government's dubious estimate of a drop of only 0.5 percent. That is the premise the government is using for its deficit target for the year of 4.5 percent.
The agency raised its forecast for the jobless rate to 25.1 percent
However, the multilateral agency improved its forecast for the contraction in output this year to 1.5 percent from 1.7 percent in July, when it also predicted GDP would fall 1.2 percent in 2013. The IMF also predicted the euro-zone economy will contract this year and stagnate in 2013, and trimmed its forecast for global growth for this year and the next to 3.3 percent and 3.6 percent, respectively.
The organization led by Christine Lagarde is also skeptical about the government's claim that unemployment will start to fall in 2013. The agency's experts raised their forecast for the jobless rate for next year by 0.4 points to 25.1 percent, barely below the levels for Serbia and Greece.
In a section on budget stability, the IMF said figures from the first half of the year show that Spain is making little progress on fiscal consolidation and reversed an earlier assessment that the government could meet its deficit target for this year of 6.3 percent of GDP, predicting that it will come in at seven percent, a figure that does not take into account losses that the administration has made on nationalizing banks.
For the following year, it is forecasting a shortfall of 5.7 percent. The agency also said the latest studies indicate that the impact of austerity programs on economic growth is much bigger than had previously been thought.