Sorry, but on a first read, Spain's budget numbers don't add up

09/27/2012 5:44 pm EST


Jim Jubak

Founder and Editor,

I hate to rain on the market’s parade today, but my initial impression from presentations by budget minister Cristobal Montoro is that the numbers don’t work.

In a way that should be familiar to students of U.S. budgets, the projected Spanish budget deficit of 4.5% for 2013 is based on very optimistic predictions of economic growth.

The budget for 2013 assumes that the Spanish economy will suffer only a soft recession in 2013 with GDP falling by just 0.5%.

That’s significantly better than the projections by most private sector economists. For example, Bank of America projects that the Spanish economy will contract by 1.7% in 2013. Citigroup is looking for a 3.2% contraction. Societe Generale projects a 2.2% contraction.

If those projections are more accurate than the wishful thinking from the Spanish government, investors can expect to see Spain back in front of parliament with a new budget request in a few months—and Spanish voters back in the streets over a new round of budget cuts and tax increases.

The full budget proposal will be available after it is presented to the Spanish parliament on Saturday.

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