NEWS Release - Spain: Staff Concluding Statement of the 2016 Article IV Mission - December 13, 2016
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country.
Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
The Spanish economy has continued its impressive recovery and strong job creation. Earlier reforms and confidence-enhancing measures have paid off, and combined with external tailwinds and fiscal loosening fueled the strong economic rebound of the past two years. Preserving the reform achievements is therefore of utmost importance but Spain needs to go farther if it is to sustain the dynamic economic performance. It is critical to reduce the remaining vulnerabilities and structural weaknesses. Immediate attention should focus on restarting gradual fiscal consolidation to put the elevated public debt firmly on a downward path, reducing the high long-term and structural unemployment, and raising the low productivity growth of Spain’s many small and medium-size enterprises.
Economic outlook and risks
The recovery is strong and imbalances are falling. The rebound in private consumption, exports, and investment, aided by past reforms, has remained the main driver of growth. Tailwinds such as the European Central Bank’s accommodative monetary policy, and fiscal relaxation have also provided support. Real GDP and employment growth remain well above the euro area average, despite a prolonged period of domestic political uncertainty. The current account is projected to record its fourth consecutive annual surplus, thus supporting the ongoing rebalancing of the economy. Private sector balance sheets—including those in the banking system—have continued to strengthen, access to credit has improved, and real estate prices have edged up.
Despite considerable progress, adjustment is still incomplete and structural weaknesses persist. In particular, unemployment, especially long-term and youth joblessness, is still very high, while the use of temporary contracts for new jobs remains wide-spread. At the same time, elevated public debt, lingering debt overhang in parts of the private sector, and the large negative net international investment position continue to leave the economy vulnerable to shocks.
Spain’s earlier reforms continue to pay off but need to be expanded to sustain strong growth and employment prospects over the medium term. In particular, wage moderation and greater labor market flexibility have helped the Spanish economy regain competitiveness and contributed to the swift creation of new jobs. In combination with several tailwinds, this has allowed the economy to expand at a vigorous 3.2 percent rate in 2015 with the same growth rate expected for 2016. However, as impulses to the economy from lower oil prices, the weaker euro, and fiscal stimulus are set to dissipate, real GDP growth is projected to moderate to 2.3 percent next year. Over the medium term, growth prospects are expected to slow further as Spain will continue to confront particularly the challenges of feeble productivity growth and high structural unemployment. Past reforms have mitigated this trend and demonstrated that additional structural measures can upgrade the medium-term outlook.
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