Government's GDP measurements are way off mark

Various government officials -- the Prime Minister, the Minister of the Economy and Minister of Employment -- announced yesterday that Spain's economic recovery will begin in 2014. The news briefing attempts to counter the effects of revisions to the country's macroeconomic forecasts and the EU's warning to Rajoy, asking him to take measures to fix budget imbalances.

The government was too optimistic thinking that GDP would only fall by 0.5% this year when all estimations showed that it would drop 1.5%. Results from Q4 2012 already showed that their expectations would not be met, but data unveiled by Luis de Guindos yesterday confirmed it: the Spanish economy will fall between 0.5% and 0.6% in the first quarter of 2013. The government predicted this much contraction for the entire year. Several days ago De Guindos thought that the recovery would start at the end of 2013, but changed his mind saying that it would start in 2014 instead. He also warns that a made-to-measure bailout option for struggling countries might be just around the corner. The situation will get increasingly complex as long as the risk premium remains high.

The government insists, rightfully so, that the European Central Bank needs to adopt measures to unify risk premiums across the euro zone. The goal is to slow down the rising costs of financing for companies in the south of Europe compared to their neighbors in the north. This is a reasonable demand that should correspond to the good work that Spain has completed. The EU took it upon itself yesterday to remind Rajoy that serious budget imbalances in Spain will threaten recovery there. And the worst part is that some reforms designed to balance the budget are still pending. When will the government put them in place?