* Premier forecasts economic growth at 1.0 pct in 2014, 1.5
pct in 2015
* Expects net job creation this year
* Cuts employers' social security payments for new jobs
* EU forecasts Spanish growth at 1 pct in 2014, 1.7 pct in
By Blanca Rodríguez
MADRID, Feb 25 Spain's economy will expand a
faster-than-expected 1.0 percent in 2014, leading to moderate
job creation for the first time in six years, Prime Minister
Mariano Rajoy said on Tuesday.
Rajoy told parliament in his annual state-of-the-nation
address that his main priority was to reduce one of Europe's
highest jobless rates, and he announced an immediate cut in the
first two years of social security contributions for companies'
While Rajoy, who is half way through a four-year term, has
overseen a stabilization of Spain's economy, he recognized that
- with one in four out of work - few Spaniards have reaped the
benefits so far.
Polls show most voters believe the economic turnaround is
due to external factors and if elections were held now, Rajoy's
centre-right People's Party (PP) would lose its absolute
majority in parliament and might lose power altogether.
"We can't feel satisfied until the jobless rate comes down
from the dramatic level that still demands our attention," Rajoy
"I repeat, we'll see net employment creation. The growth
will still be moderate this year ...but it will intensify in
Spain's jobless rate of around 26 percent is not expected to
fall significantly this year.
Rajoy promised income tax relief for lower wage earners as
well as a pick-up in growth to 1.5 percent next year - three
years after he broke a campaign pledge and raised income tax to
cut one of Europe's highest public deficits.
The European Commission on Tuesday also forecast Spain's
economy would grow 1 percent this year and was more optimistic
for 2015, projecting an expansion of 1.7 percent.
The Spanish government's growth forecast in the 2014 budget
had been for 0.7 percent, but surging exports have lifted that
Two years after teetering on the brink of default, and after
six years of economic doldrums, Spain's sovereign borrowing
costs have fallen to near-record lows.
Its short-term costs dropped on Tuesday at an auction of
3-month and 9-month paper, days after Moody's credit rating
agency bumped up its ratings on Spanish debt, citing reforms
that have helped make the economy more competitive.
Exports have jumped as companies have responded to more
flexible rules on hiring and firing, introduced by Rajoy two
That has helped the economy to recover from the 2008
collapse of a long building and housing bubble that brought
Spain's banks to their knees in a crisis that threatened to
bring down the euro.
EYE ON THE DEFICIT
"Spain was seen as dragging Europe down and now it is seen
as a driver," Rajoy said in a 90-minute speech. An opposition
leader said he was getting ahead of himself.
"What country are you living in?" retorted Socialist leader
Alfredo Perez Rubalcaba at the beginning of an afternoon debate
on the speech, highlighting Spain's record-high debt, increasing
wage inequality and reduced purchasing power.
While Spain's public deficit has come down from a
double-digit peak in 2011, debt is seen rising to close to 100
percent of national output by the end of this year, the highest
level in more than a century. Public debt has almost tripled
Rajoy is banking on economic recovery to allow him to reduce
some taxes next year, after he hiked VAT and income tax. But he
still needs to keep an eye on the budget gap.
In its forecast on Tuesday, Brussels saw Spain hitting its
deficit reduction target this year, bringing the gap down to an
amount equivalent to 5.8 percent of economic output.
But it said that if the government sticks to a plan to let
temporary income tax hikes phase out at the end of this year,
the deficit could soar next year to 6.5 percent of GDP, well
over the 4.2 percent target.
Rajoy plans a complete overhaul of the tax system by next
year, which could change forecasts. He said on Tuesday he would
send his tax bill to parliament by June.