No respite seen for euro zone periphery woes: poll

LONDON (Reuters) - Deeper recessions, spiralling unemployment and a failure to meet budget deficit targets will afflict the euro zone's most vulnerable economies floundering under austerity, a Reuters poll suggested on Thursday.

The survey of more than 40 economists, taken over the last week, showed Portugal, Spain and Greece will stay stuck in a much deeper economic mire than they predicted in January.

Having largely supported the euro zone's drive to repair government budgets since the Great Recession, market economists are now questioning the wisdom of austerity - at least in the severe form prescribed by Europe's governing institutions.

Economists have been slashing growth forecasts for the euro zone periphery since last June, while piling on percentage points to their forecasts for unemployment.

The latest poll showed the euro zone's fourth largest economy, Spain, will fail to meet its newly-softened budget deficit targets this year and next by a significant margin.

And it will make no progress in reducing depression-era levels of joblessness.

"The extent of the austerity that's being delivered is going to have an impact on the domestic economy, and we're not wildly optimistic about elsewhere in the world," said Janet Henry, chief European economist at HSBC.

Ireland was the only economy out of the four polled on that analysts thought would expand this year and next, albeit at a weaker pace than foreseen in January's poll.

"The only hope for growth in these countries is some kind of export-led growth. It's too soon for the structural reforms to have a positive impact," said Henry.

With the world economy showing fairly mediocre signs of growth this year, hopes for a big pickup in external demand look distant.

Economists were particularly pessimistic about Spain's prospects.

Madrid relaxed its deficit targets for this year and next to grudging acceptance from the European Union, but economists were doubtful that even these softer goals are realistic.

From 8.5 percent in 2011, Spain's budget deficit will ease to 5.8 percent of gross domestic product this year, compared with the government's new target of 5.3 percent, the poll showed.

Worse still, economists thought the deficit would then narrow only slightly to 4.5 percent in 2013 - miles off Madrid's stated aim of 3.0 percent.

The findings are in line with the International Monetary Fund's report last week that said Spain's targets are unrealistic.

Madrid has said repeatedly it will meet its tough deficit targets, although fears about the indebtedness of its banks and consumers have sent the state's borrowing costs sharply higher since the start of March.

Spain has the worst unemployment rate in the European Union - at 23.6 percent in February - and analysts say it could still get worse.

The poll showed unemployment ending this year at 24 percent and 24.1 percent in 2013.

Overall, the Spanish economy is expected to contract 1.5 percent in 2012 and then 0.2 percent next year.

CELTIC TIGER GROANS

While Ireland's economic ills are still numerous, analysts thought its economy will grow around 1.5 percent in 2013, having returned to growth of 0.2 percent this year.

And compared to Portugal and Spain, it looks on track to meet its fiscal targets.

"Ireland has a better economic model than the other 'peripherals' to generate growth in the short-term," said Alan McQuaid, chief economist at Dublin-based stockbrokers Bloxham.

"But even here its strong export sector is being hampered by the weakening global economy and falling demand."

He said there needs to be some slowdown in the rate of austerity to allow economies some room to grow, otherwise the euro zone will remain in its economic mire for some time to come.

Economists polled earlier this month expected the currency union's recession will now extend through the current quarter, emerging with very slight growth in the third quarter.

Perhaps unsurprisingly, Greece will suffer the steepest economic contraction this year, at around 5.0 percent - far steeper than the 3.7 percent predicted in January. Like Spain, its unemployment rate seems destined to head into catastrophic levels, to 23 percent next year.

Portugal, already the subject of an EU and IMF-led bailout, will see its economy shrink 3.5 percent this year, and then 0.8 percent next year. It will also miss its budget targets for this year and next, although not as badly as Spain, the poll showed.

(For poll data see)

(Polling and analysis by Namrata Anchan and Sarmista Sen in Bangalore.Editing by Jeremy Gaunt.)