Social welfare costs pushing up Spain's budget deficit
SOCIAL welfare costs will contribute most of the increase in Spain's 2012 budget deficit, the government estimates, as new figures highlighted the scale of the worsening recession.
The Madrid government's target for the state and the social-security system combined is now 4.5pc of gross domestic product, according to a presentation sent to the European Commission that the Budget Ministry posted on its website.
Under the previous targets for this year, social security was to be balanced, while the state forecast a deficit of 3.5pc of GDP in its finances.
Spain's target for all levels of public spending remains at 6.3pc of GDP, having been increased from 5.3pc last month.
Euro area finance ministers agreed then to postpone for a year the deadline for Spain to bring its budget shortfall back within the European Union limit of 3pc of GDP.
The new estimates came as figures showed Spanish industrial output in June was 6.5pc lower than a year earlier. This was the 10th consecutive annual decline.
Meanwhile, forecasts from the French central bank suggested that Europe's second largest economy is in recession.
The Banque de France said its preliminary figures show that gross domestic product would be down 0.1pc in the third quarter. It had already predicted that GDP would fall by the same amount in the second quarter.
If correct, this would mean the economy is in recession.
German data yesterday showed German exports dropped more than economists forecast in June and industrial production declined, after strong increases in May.
Spain and Italy's credit ratings were downgraded by the Canadian ratings firm DBRS.
Spain was cut two steps and Italy was downgraded one level. Ireland's rating was unchanged at the same level as Spain, four steps from non-investment grade "junk".