24) «The IMF 2014 forecast about Spain»

by Javier Carro

Topics: Economy, Frontpage

October 11, 2013.

The IMF sees GDP, in Spain, contracting 1.3 % this year (2013), but predicts growth of only 0.2 % in 2014, but predicted that the labor market (unemployment) would continue to deteriorate.

However, the IMF sees little relief for the almost six million people who remain out of a job in Spain, predicting that the country’s jobless rate would come in at 26.9 % this year (2013) and at 26.7 % next year (2014), the latter figure actually having risen from a previous forecast of 26.5 %.

While Spain looks set to emerge from its second recession in four years, it seems that it could take another five years to recover the levels of output seen in 2008.

Spain remains close to the bottom of the growth table in the euro zone, only better off than Italy and Portugal where growth is expected to contract 1.8 percent, Greece, where GDP is forecast to decline 4.2 %, Slovenia with a fall of 2.6 % and Cyprus, whose output is seen shrinking 8.7 %. The IMF expects Italy to surpass Spain next year, with GDP growth of 0.7 %.

In order to boost the recovery, the IMF insists that Spain needs to continue with internal devaluation by cutting wages in order to boost competitiveness.

IMF experts proposed a pact between the government, business and labor unions under which salaries would be cut 10 percent in exchange for a commitment from companies to create jobs. It also suggested that company Social Security contributions should be cut and for revenues from value-added tax to be raised by increasing the range of products subject to the standard rate as opposed to the reduced rate.

As experts from the IMF suggest, it’s as if the Spanish economy were trapped in a vicious circle. On the one hand, there is the drag on the economy of the longest recession in living memory. And on the other, there are the effects of the government’s austerity measures.

The IMF also believes that Spain’s outstanding public debt will continue to swell from 100 percent next year to 110.6 % in around 2018. The main reason behind that is that the agency (IMF) believes the public deficit will remain at 5.5 % in 2018, compared with a government target of 2.8 % in 2016.

“The recovery will be fragile and very tenuous,” Economy Minister Luis de Guindos said….∎

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