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Spain's economy set for worse 2020 than feared, but to rebound next year

MADRID (Reuters) - Spain’s government forecast on Tuesday a worse-than-feared contraction of the coronavirus-battered economy this year, but a strong rebound in 2021 with a possible return to pre-pandemic levels in 2022.

FILE PHOTO: Spanish Economy Minister Nadia Calvino in Berlin, Germany, September 11, 2020. REUTERS/Hannibal Hanschke/Pool/File Photo

Economy Minister Nadia Calvino told a news conference that the government now foresees GDP to fall 11.2% in 2020 - down from a previous prediction in May for a 9.2% slump and a far cry from last year’s growth of 2 percent.

Spain is experiencing a second wave of COVID-19 infections, with the highest caseload in Western Europe.

With the economy suffering its deepest recession since the civil war, and the worst in the euro zone, the central bank warned politicians to stop bickering and focus on solutions to the crisis or risk worsening the outlook.

For 2021, Calvino forecast GDP growth of 7.2%, from a previous estimate of 6.8%. But growth could go to as much as 9.8% next year thanks to the European Union recovery fund, according to a slide presentation next to the minister.

Calvino said Spain was banking on a COVID-19 vaccine being available in coming months.

‘NO AUSTERITY’

The public deficit is expected to be worse than previously estimated, at 11.3%, before improving to 7.7% in 2021, which Budget Minister Maria Jesus Montero said would be achieved “with no cuts and no austerity.”

Unemployment would reach 17.1% this year - three percentage points up from 2019 - and 16.9% next year, not quite as bad as previous forecasts, according to the presentation.

Calvino said the government plans to issue less debt in 2020 than previously scheduled, promising more details in coming days and weeks. With the economy contracting, debt will stand at 118% of GDP at the end of this year, slightly up from a previous 115% estimate.

The forecasts are meant to be the basis for the 2021 budget.

If the minority government of Socialist Prime Minister Pedro Sanchez gets enough votes to pass it in parliament, it will be Spain’s first budget since 2018, and the first full-year budget since 2016. In other years, there was simply a roll-over of the previous budget, for lack of a majority.

“We’re moving towards a budget that must combat inequality, kick off recovery and carry out the great transformation this country needs,” Sanchez said on Twitter.

Public spending in Spain will be 53.7% higher in 2021 than 2020 if all the EU funds expected for 2021 are disbursed, Montero said, adding: “This budget, with this data, will mark a before and an after.”

Reporting by Nathan Allen, Belen Carreno, Inti Landauro; Writing by Ingrid Melander; Editing by Andrew Cawthorne

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