THE International Monetary Fund (IMF) has predicted two more years of recession, saying that Spain’s GDP will shrink by 1.7 per cent this year with a budget deficit of 6.8 per cent.

This despite previous IMF estimates that Spain’s economy would grow 1.1 per cent, and Spain’s own intention to achieve a budget deficit of just 4.4 per cent.

“Spain will respect the deficit target. Today that is 4.4 per cent, and Spain will respect that target,” said Prime Minister Mariano Rajoy.

IMF boss Christine Lagarde said that without a ‘larger firewall’, both Italy and Spain could be forced into a solvency crisis.

Predictions are that Spain and Italy will remain in recession throughout 2012 and also in 2013 – although the GDP fall in 2013 is more promising , at 0.3 per cent.

The IMF also praised the “substantial” spending cuts and tax increases adopted by Spain’s new PP government in an effort to bring down the deficit.

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