Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 Article IV Consultation with Spain







November 13, 2020
















Washington, DC:

On November 11, 2020, the Executive Board of the International Monetary
Fund (IMF) concluded the Article IV consultation


[1]

with Spain.

The COVID-19 pandemic has hit Spain’s society and economy severely
following five years of strong job-rich growth. Spain experienced the
largest contraction in the first half of the year (12.8 percent) among
major advanced economies. The magnitude of the drop reflects the scale of
the infectious spread, which required strict lockdown measures, and
structural features that make the economy more vulnerable to disruptions,
such as a high prevalence of small and medium size enterprises, importance
of tourism, and widespread use of temporary employment contracts. The
gradual relaxation of confinement measures breathed some life into activity
during the summer, but the severity of the second wave of infections is
worrying.

A suite of income and liquidity support measures has curbed the economic
fallout of the pandemic. The short-time work scheme (ERTE) has been
critical to limit the impact on unemployment. The banking sector—backed by
policy measures such as public loan guarantees and the ECB’s accommodative
monetary policy—has continued to support the real economy with credit
intermediation, in contrast with the global financial crisis. Mitigating
the impact on the economy is taking a toll on government finances, with the
public debt ratio expected to increase to about 120 percent of GDP in 2020.

Under a baseline scenario without new widespread strict containment
measures, activity is forecast to contract by about 12 percent in 2020, and
partially recover by about 7 percent in 2021. The recovery rests on a
strong rebound in private consumption and a substantial increase in public
investment financed mainly by a front-loaded utilization of funds under the
EU Recovery and Resilience Facility (RRF). The outlook is highly uncertain,
with risks heavily tilted to the downside, and will crucially depend on the
containment of the second wave of infections; size, timing, and composition
of EU-funded additional spending; as well as on the success of policy
measures to mitigate the scarring.

Executive Board Assessment

[2]

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Executive Directors noted that the COVID-19 pandemic has severely hit
Spain’s economy and society, causing a tragic loss of lives, higher
unemployment, and a sharp economic recession. The recovery will be
protracted and subject to significant risks and uncertainty. The near-term
outlook will crucially depend on the effectiveness of new containment
measures and preparedness of the healthcare system.

Directors commended the authorities for their swift and forceful
implementation of income and liquidity support measures to mitigate the
economic and social fallout of the pandemic. They stressed the importance
of continued policy support until the recovery is firmly underway while
maintaining flexibility to adapt it to evolving developments. Directors
agreed that, as the pandemic recedes, fiscal support should become
increasingly targeted at vulnerable groups and viable firms, facilitating
resource reallocation toward expanding sectors.

Directors highlighted the urgency of addressing corporate vulnerabilities.
They recommended prioritizing targeted equity support to viable firms, with
a well-designed exit strategy. They encouraged continued efforts to
strengthen private debt resolution frameworks and expand the capacity of
commercial courts.

Directors noted the strength of the financial system, which has helped
mitigate the economic impact of the crisis. They emphasized the need for
continued strong supervision, together with relief measures and prudent
dividend policies. Directors welcomed efforts to strengthen the AML/CFT
framework. They also encouraged enhancing the crisis management frameworks
both at the national and European levels by tackling any shortcomings in
the resolution and liquidation regimes.

Directors welcomed the authorities’ intention to use European funds to
support the near-term economic recovery while promoting a structural shift
to a more productive, greener, and digital economy, in line with the policy
priorities of the national recovery plans. They stressed the need for
efficient coordination, implementation, and oversight of plans.

Directors agreed that, over the medium term, fiscal consolidation will be
needed to rebuild buffers and put debt on a downward path. They welcomed
ongoing efforts to enhance tax progressivity and revenue collection
capacity, and encouraged further pension reforms.

Directors noted that the pandemic has exacerbated already high
socio-economic disparities in Spain. They welcomed the efforts to
strengthen the social safety net with the introduction of the Minimum
Income Scheme. They encouraged more retraining and reskilling for displaced
workers, upgrading unemployment benefits, addressing labor market duality,
and improving gender equality.

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Spain: Main Economic Indicators (October 2019 WEO)

(Percent change unless otherwise indicated)

Projections 1/

2015

2016

2017

2018

2019

2020

2021

2022

Demand and supply in constant prices

Gross domestic product

3.8

3.0

2.9

2.6

2.0

-12.8

7.2

4.5

Private consumption

2.9

2.7

3.0

1.8

1.1

-14.8

9.1

4.8

Public consumption

2.0

1.0

1.0

1.9

2.3

3.7

0.2

1.0

Gross fixed investment

4.9

2.4

5.9

5.3

1.8

-16.2

10.3

4.9

Total domestic demand

4.1

2.1

3.1

2.7

1.5

-11.4

7.2

4.0

Net exports (contribution to growth)

-0.1

1.0

-0.1

-0.3

0.5

-1.7

0.0

0.5

Exports of goods and services

4.3

5.4

5.6

2.2

2.6

-25.5

10.1

12.9

Imports of goods and services

5.1

2.7

6.6

3.3

1.2

-22.3

10.6

11.7

Savings-Investment Balance (percent of GDP)

Gross domestic investment

19.0

18.8

19.4

20.4

20.8

20.3

20.8

20.9

National savings

21.0

21.9

22.1

22.3

22.8

20.8

21.7

22.1

Foreign savings

-2.0

-3.2

-2.7

-1.9

-2.0

-0.5

-0.9

-1.3

Household saving rate

(percent of gross disposable income)

7.2

7.0

5.5

5.9

7.4

13.1

8.2

6.4

Private sector debt (percent of GDP)

222.0

213.0

203.4

196.9

189.8

208.9

195.8

186.9

Corporate debt

149.9

144.2

137.7

133.3

127.6

136.9

126.1

118.8

Household debt

72.2

68.9

65.7

63.6

62.2

72.0

69.7

68.1

Credit to private sector

-4.2

-4.1

-2.0

-3.9

-1.5

2.5

1.4

1.5

Potential output growth

0.6

0.9

1.1

1.3

1.5

-2.5

1.8

1.5

Output gap (percent of potential)

-4.6

-2.6

-0.9

0.2

0.6

-10.0

-5.3

-2.5

Prices

GDP deflator

0.5

0.3

1.4

1.1

1.6

0.5

0.9

1.4

HICP (average)

-0.6

-0.3

2.0

1.7

0.7

-0.2

0.8

1.4

HICP (end of period)

-0.1

1.4

1.2

1.2

0.8

-0.3

0.8

1.6

Core inflation (average)

0.6

0.8

1.1

0.9

0.9

0.8

0.6

1.4

Core inflation (end of period)

1.0

0.9

0.9

0.9

1.0

0.8

0.6

1.4

Employment and wages

Unemployment rate (percent)

22.1

19.6

17.2

15.3

14.1

16.8

16.8

15.7

Labor productivity 2/

0.6

0.2

0.0

-0.2

-0.3

-3.6

3.4

2.3

Labor costs, private sector

0.2

0.1

0.7

2.0

2.3

0.6

0.8

1.4

Employment growth

3.0

2.7

2.6

2.7

2.3

-4.9

1.0

2.1

Balance of payments (percent of GDP)

Current account balance

2.0

3.2

2.7

1.9

2.0

0.5

0.9

1.3

Net international investment position

-88.9

-85.5

-85.5

-80.2

-74.4

-84.0

-75.4

-68.6


Spain: Main Economic Indicators (October 2019 WEO)
(concluded)

(Percent change unless otherwise indicated)

Projections 1/

2015

2016

2017

2018

2019

2020

2021

2022

Public finance (percent of GDP) 3/ 4/

General government balance

-5.2

-4.3

-3.0

-2.6

-2.8

-14.1

-7.5

-5.8

Primary balance

-2.6

-1.9

-0.7

-0.3

-0.8

-11.7

-5.1

-3.4

Structural balance

-2.4

-2.7

-2.5

-2.3

-3.1

-8.1

-4.4

-4.3

General government debt

99.3

99.2

98.6

97.6

95.5

123.0

121.3

120.4

Sources: IMF, October 2020 World Economic Outlook; data
provided by the authorities; and IMF staff estimates.

1/ The projections incorporate disbursements from the EU
Recovery and Resilience Facility amounting to about 1.5
percent of GDP per year in 2021–24.

2/ Output per worker.

3/ The 2020 fiscal projections include the discretionary
measures adopted in response to the COVID-19 crisis, the
legislated pension and public wage increases, and the
minimum vital income support. Fiscal projections from 2021
assume an expiration of temporary COVID-19 measures and no
further policy change. Disbursements under the EU Recovery
and Resilience Facility in 2021–24 are reflected as
receipts in other revenue in the form of grants and
spending in public investment.

4/ The headline balance includes financial sector support
equal to 0.2 percent of GDP for 2016, and 0.1 percent of
GDP for 2017.


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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Meera Louis

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson