Madrid.—The Bank of Spain warned yesterday that the recession-hit country could miss its budget deficit target for 2012 given the ‘very unfavourable' economic context, one year after it overshot its 2011 target. “A reduction of the public deficit takes place this year under very unfavourable economic and financial conditions,” the Spanish central bank's governor, Luis Maria Linde, told the Senate.

The Spanish government has imposed austerity cuts aimed at saving 150 billion euros between 2012 and 2014 in a bid to reduce the deficit, but Linde warned that this might not be enough. “Despite that, the currently available information still doesn't allow us to rule out the possibility of budget slippage,” said Linde, repeating a warning he had issued last month.

Spain, with the eurozone's fourth-largest economy, missed last year's public deficit target by a wide margin, ending 2011 with a shortfall equal to 9.4 percent of output instead of the promised 6.0 percent.

This year, it has promised to lower the overall deficit to 6.3 percent of output, but Linde said that to meet the target, the country's tax increases would have to offset the rise in debt servicing expenses, pension payments and unemployment benefits.