The European Commission has set dire economic forecasts for Spain until 2014, El Pais reported on Tuesday, shooting down the targets set out by Madrid and potentially pushing it closer to seeking euro zone aid.
The Commission is forecasting a 1.5 percent decline in Spanish gross domestic product in 2013, significantly worse than the 0.5 percent contraction penciled in by the Spanish government, El Pais said, citing a draft of the forecasts.
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The Commission is due to officially announce its autumn economic forecasts on Wednesday, covering growth, inflation, debt and deficit projections.
Spanish Prime Minister Mariano Rajoy has so far hinted that he can hold off on applying for a financial rescue that would kickstart an ECB bond-buying program and ease financing costs. But the worsening economy may force his hand.
After a year of recession, Spain's unemployment rate hit a record high of 25 percent in the third quarter and its manufacturing sector shrank last month for the 18th consecutive month and at its fastest pace since July.
The Commission does not expect the Spanish economy to grow until 2014, and its 0.5 percent growth forecast for that year is far below the 1.2 percent growth seen by Spain, El Pais said.
In 2012, the Commission forecasts the Spanish economy to fall by 1.6 percent this year, slightly worse than the 1.5 percent fall in GDP forecast by Spain.
The Commission also has more negative forecasts for the Spanish budget deficit, predicting a deficit of 8 percent of GDP in 2012, 6 percent in 2013 and 5.8 percent in 2014, including bank recapitalization costs.
Spain is forecasting a deficit of 7.3 percent in 2012, 4.5 percent in 2013 and 2.8 percent in 2014.
The Commission's draft does not include the impact of Spain's latest round of tax hikes, El Pais said.
Rajoy is due to give an interview on Spanish radio La Cope at 8 a.m. EDT, followed by the Purchasing Managers Index for the service sector that will show how this key part of Spain's economy fared in October after falling to its lowest level since November 2011 in September.
(Reporting By Tracy Rucinski; Editing by Mike Peacock and Pravin Char)