Spain plans $8.6 billion stimulus package

02 Jun 2014

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Spanish prime minister Mariano RajoySpain plans to introduce tax cuts and a new stimulus package worth €6.3 billion ($8.6 billion) next week, Spanish prime minister Mariano Rajoy announced yesterday.

The prime minister also said the main rate of corporate tax would also be cut to 25 per cent from 30 per cent.

This is expected to boost the economy's competitiveness and create jobs.

The Spanish unemployment rate is running at almost 26 per cent, with more than half of the workforce under 24 years of age out of work. Spain has the second-highest unemployment rate in the eurozone, behind Greece.

''Next Friday, the government will present a package of measures to encourage investment in research and development and to help the country increase competitiveness and productivity,'' Rajoy said.

''The plan will include investments totalling €6.3 billion, of which €2.67 billion will come from the private sector and €3.63 billion from the public sector,'' he added.

Reports suggest the package will include credits to small and medium-sized firms, and investments aimed at research and development, transport and energy saving.

Spain emerged from recession in October 2013. Standard & Poor's was the third credit rating agency to upgrade Spain's sovereign credit grade on 23 May.

The economy grew at its fastest quarterly pace since 2008 during the first three months of this year, with GDP up by 0.4 per cent over the quarter. Compared with year earlier, it grew by 0.6 per cent, the fastest pace in three years.

Meanwhile, suggesting the country's recovery, Spain's manufacturing PMI jumped to 52.9 in May, from 52.7 in April - the highest reading since April 2010.

Andrew Harker, senior economist at Markit and author of the report, said Spanish companies appear to be becoming more optimistic.

''The recent growth in the Spanish manufacturing sector shows little sign of falling away at present, with further solid expansions in output and new orders recorded in May,'' Harker said.

"One of the positives from the latest survey was that firms upped their rate of purchasing to the fastest in more than four years, suggesting less of a reluctance to hold inventories amid positive expectations for the future,'' he added.

However, the overall eurozone PMI fell to 52.2 from 53.4 in April 2014. Although that's still above the 50-point mark showing growth, it shows that new orders and output grew less strongly last month.

The Markit PMI series are monthly economic surveys of selected companies compiled by Markit. They provide advance insight into the private sector economy by tracking variables such as output, new orders, employment and prices across key sectors.

According to the latest estimate by the European Commission, Spain will have a deficit of 5.6 per cent of gross domestic product this year, rising to 6.1 per cent in 2015.

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