InvestmentsJul 11 2014

IMF warns Spain needs further reform to support recovery

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Spain may have “turned a corner” in its economic recovery, but it still has more to do to ensure the recovery is strong and long-lasting the IMF has warned.

In its latest staff report on the country, the organisation stated: “Growth has resumed, labour market trends are improving, the current account is in surplus, banks are healthier, and sovereign yields are at record lows. But unemployment is unacceptably high, incomes have fallen, trend productivity growth is low, and the deleveraging of high debt burdens—public and private—is weighing on growth.”

It added the country’s overarching policy priority is now to ensure the recovery remains strong and “most pressingly, job rich”.

The IMF pointed to a number of policies to be implemented, including a more comprehensive and co-ordinated approach to debt restructuring, and removing regulatory barriers that prevent firms from growing, hiring, and becoming more productive, especially at the regional level.

It added: “These reforms should make the recovery much stronger and more job-rich. But the gains may not be enough to generate the high and sustained growth rates that Spain needs to reduce unemployment to international norms and to catch up with its higher income peers in Europe. This can be done. But it may require more fundamental and wide-ranging reforms beyond those laid out in this report, including in areas like education, institutions, barriers keeping firms small, and a cross-party determination to carry them out over many years. Clear and ambitious goals could help define such a roadmap and build national consensus for the more difficult reforms.”