IMF puts off Spain's economic recovery

MADRIDMore bad news for the Spanish economy: the International Monetary Fund (IMF) has slashed growth forecasts for its economy in 2021 and 2022. In fact, the IMF already downgraded its growth expectations for this year in early autumn. Now, however, it has also cut next year's. Specifically, the international body has set the growth of gross domestic product (GDP) for this year at 4.6%, 1.1 points less than the October forecasts. As for next year, the agency estimates that the economy will grow by 5.8%, in this case six tenths less than the figure it gave just two months ago.

"The Spanish economy is recovering from a deep recession due to the pandemic," the agency states, which notes that Spain suffered one of the deepest declines in the economy when the pandemic broke out. In addition, Spain is growing slower than its European neighbours. Nevertheless, the IMF endorses the policies the Spanish government adopted to deal with the crisis: "They have been timely and decisive in protecting employment, household incomes and businesses". It also points to the good pace of vaccination as one of the elements that have helped to "limit the impact" of the pandemic on economic activity.

In the short term, the IMF places private consumption as the "main engine" of growth in the economy, coupled with the "solid recovery of the labour market," which, unlike GDP, shows a more vigorous dynamism. On the other hand, in the long term the IMF points to the deployment of European Next Generation funds as a key element. "The pace of absorption of the funds and the efficiency with which they are used will determine growth in the coming years," says the organisation, which estimates that they could have an impact of between 1.5 and 2 points on GDP growth next year.

Focusing fiscal policy

The IMF looks favourably on policies the Sánchez executive has deployed and, in fact, recommends that "the stimulus should be maintained until the recovery has been consolidated," in line with the European Central Bank (ECB). However, the IMF also recalls that states are currently taking on debt thanks to the ECB's expansive policy, but that in the long term "high levels of public debt can be a source of vulnerability". That is why the agency aims to focus the stimulus among the most vulnerable, and to develop a fiscal consolidation plan as recommended by the Airef.

As for reforms, the IMF notes that although the first part of the pension reform has prioritised "social acceptance", there are still "concerns about the sustainability of the system if no additional measures are taken". In fact, the Spanish government has to approve the second part of this reform next year, which, among other measures, includes changes to the way pensions are calculated. Finally, on labour matters and at a time when social agents and the Spanish government are negotiating against the clock on the labour reform, the IMF supports the executive's guidelines. "The government has identified well what the priorities are," the report states, which points to youth and long-term unemployment, as well as temporality, as the endemic problems of the Spanish labour market. In this sense, it supports the government in seeking ways to discourage this kind hiring.

However, the IMF assumes that uncertainty remains as a result of the emergence of new covid-19 variants and also the prolongation of elements such as inflation and high energy prices or bottlenecks. Indeed, it is this uncertainty that is forcing the Spanish government to prolong its measures to protect the most vulnerable.