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FOCUS: IMF praises Spain's 'virtuous circle'

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Pablo Iglesias, leader of the Spanish populist left party Podemos, who the IMF warns threaten the recovery. Photo: ARIS MESSINIS / AFP
09:35 CET+01:00
Spain has emerged from a devastating crisis and entered a "virtuous circle" with faster growth than its neighbours, but the IMF warns that high unemployment and the rise of populist parties still threaten the recovery.

The International Monetary Fund raised its growth forecast for just two nations -- Spain and the United States -- in its gloomy quarterly World Economic Outlook report released on Tuesday that lowered global growth forecasts.

It predicts Spain's economy will expand by 2.0 percent this year, in line with the Spanish government's forecast, up from the 1.7 percent growth it projected in October. The IMF left its 2016 forecast of growth unchanged at 1.8 percent.

"There has been a substantial improvement in competitiveness, due both to an increase in productivity and to a decrease in wages. So, exports in Spain are doing well. That's helping," IMF Chief Economist Olivier Blanchard said after the report was released.

Spain, the eurozone's fourth-largest economy, was plunged into chaos in 2008 when the global financial crisis hastened a correction that was already under way in its once-buoyant property sector.

The country has since 2012 introduced major reforms of its labour laws which make it easier for employers to lay off workers or reduce wages which has "greatly improved its competitiveness", economist Jesus Castillo of French investment bank Natixis told AFP.

Consumer spending also increased last year as Spaniards became more optimistic about the economy with retail sales up over Christmas.

"These two factors have the effect of increasing growth," said Blanchard. "In situations like this, there is a virtuous circle to it, which is more confidence in the future leads to more investment, more consumption."

The slump in the euro currency has made exports from Spain to markets outside the eurozone cheaper while a drop in oil prices has also helped give the country, which imports 80 percent of its energy, a boost.

Economy Minister Luis de Guindos estimates falling oil prices could save Spain up to 15 billion euros ($17 billion) this year.

He told private television Antena 3 on Friday that his conservative government -- which is facing a year-end general election -- may raise its 2.0 percent growth forecast for 2015.

But, Spain's sky-high jobless rate remains a major drag on the country's economic turnaround, said Castillo.

"Can we say that the crisis is over? No," he said.

Joblessness fell to 23.7 percent last year from 25.7 percent as Spain's large services sector took on more staff, driven by a strong tourist season, the National Statistics Institute said Thursday.

But the rate remains the highest in the European Union after Greece, and the International Labour Organization predicts it will remain above 20 percent until the end of the decade.

"The unemployment rate in Spain is still much too high," said Blanchard. "In Spain, as in many others countries, this is leading to the rise of parties that either do not want to be part of the euro or have populist positions. That's something that we have to worry about," he added.

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Anger over graft and frustration after six years of economic turbulence have shaken up the two-party system that has dominated since Spain emerged from dictatorship in the 1970s. 

A fast-growing far-left party set up in January 2014 called Podemos, which backs public control over certain sectors of the economy and a 35-hour working week, tops polls of voter sentiment.

Podemos leaders hope that a win for their Greek allies Syriza in Sunday's general election will help boost support for their party. But the party's rise has so far not shaken investor confidence in Spain, said Miguel Cardona, chief economist for Spain at the nation's second-largest bank, BBVA.

"We don't see any negative effect on the volume of investment," he told AFP.

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