IMF posts grim jobless warning for Spain

The IMF told Spain on Friday it faces five more years with an unemployment rate topping 25 percent as it pressed Madrid to enact new reforms including measures to help firms slash wages instead of axing staff.

IMF posts grim jobless warning for Spain
Christine Lagarde, Managing Director of International Monetary Fund. File photo: Petras Malukas/AFP

Spain's economy, the fourth largest in the eurozone, has been shrinking for two years and official data show the unemployment rate hit 26.26 percent in the second quarter of this year, slightly below the record 27.16 percent posted in the first quarter.

The outlook for Spain's economy, the fourth largest in the eurozone, is "difficult and risks are high," the International Monetary Fund's annual report said, predicting a 1.6-percent economic contraction this year, zero growth in 2014 and growth of just 0.3 percent in 2015.

"The weak recovery will constrain employment gains, with unemployment remaining above 25 percent in 2018," said the report compiled by IMF staff.

The Washington-based institution said it expected the Spanish unemployment rate to hit 27.2 percent this year, then dip to 27.0 percent next year, 26.9 percent in 2015, 26.6 percent in 2016, 26.0 percent in 2017 and 25.3 percent in 2018.

In its previous World Economic Outlook report in April, the Fund had said it expected the jobless rate to dip below 25 percent two years earlier, declining to 24.7 percent in 2016.

IMF executive directors praised Madrid for economic reforms, including 2012 legislation making it cheaper to lay off workers and easier to change staff hours and cut wages.

"However the economy remains in recession, with unacceptably high unemployment, and the outlook remains difficult," the directors said.

"Labour market dynamics need to improve further in order to reduce unemployment sufficiently."

IMF staff who held talks with Spanish government officials said the labour market dynamics "do not seem to have improved sufficiently" despite last year's reforms.

"In the end, faster wage adjustment would likely lead to fewer people losing jobs or consuming less for fear of this risk and more unemployed being hired," the staff said.

The minimum wage in Spain is €645 ($850) a month.    

Besides enabling wage cuts, the IMF officials urged Spain to narrow the gap between workers on permanent contracts, who have the right to high payments in case of dismissal, and those on more precarious temporary contracts.

If Spanish unions and employers could agree on the reforms, such a deal would accelerate job gains, the IMF staff report said.

But Spanish government officials "did not see the present social environment as sufficiently receptive for such an agreement and feared that trying to reach one might stall crucial reforms," it added.

The IMF mission chief for Spain, James Daniel, said in a separate report that the recession-hit Spanish economy would probably show growth later this year "in the fourth or even third quarter."

"But the really important question is not whether Spain will grow but whether Spain will grow enough to create lots of new jobs to bring down unacceptably high unemployment and to increase household incomes."

Spain has never managed to achieve net job creation with economic growth of less than 1.5–2.0 percent, the IMF report said.

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Unemployment in Spain hits four million for first time since 2016

The number of people in Spain registered as unemployed surpassed four million for the first time in five years in February, government figures showed Tuesday, as pandemic restrictions hit the country's tourism-dependent economy.

Unemployment in Spain hits four million for first time since 2016
Photo: Josep Lago/AFP

Jobless claims rose by nearly 45,000 last month over last month to hit 4,008,789, the labour ministry said, the fifth consecutive monthly increase.

The rise is due to the impact of “severe restrictions imposed to combat the third wave of the pandemic,” the ministry said in a statement.

The last time the number of jobless in Spain rose above four million was in April 2016.

Spain’s regional governments, which are responsible for health, have imposed various measures to try to curb the spread of the coronavirus, including shutting down bars and restaurants and nightly curfews which have hit the hospitality sector hard.

A broader, quarterly household survey by the national statistics institute INE provides the official unemployment rate, which hit 3.7 million or 16.1 percent at the end of December.

Both the labour ministry and the INE figures do not include the roughly 755,000 people benefitting from a government coronavirus furlough scheme as of the end of last year.

The Spanish government says it has spent €40 billion ($48 billion) since the start of the pandemic to finance the furlough scheme and help the self-employed.

Spain’s economy contracted by 11 percent in 2020, one of the worst performers in the eurozone, with its key tourism sector battered by the