Bank of Spain says tax cuts are impossible

The Banks of Spain thinks that the recession will deepen this year, also agreeing with the IMF that Spanish GDP will fall 1.5% and that unemployment will reach 27.1%. The predictions came from "conservative and pessimistic" government analysts yesterday, and the government is going to lower its own forecasts for the economy.

The consensus view is that the crisis could hit bottom in 2013 and that a recovery could begin as soon as 2014. With these views in mind, the national and regional governments are obligated to continue making considerable spending cuts because so long as the economy does not grow, tax revenues will not increase. It will be hard for Rajoy to fulfil some of the promises that he made during his state of the nation address -- notably his commitment to lower Spain's personal income tax (the Spanish abbreviation is IRPF) in January.