Technicians at the International Monetary Fund (IMF) evaluated Spain’s economy, noting that growth is likely to stall in the near term due to weak external demand and dropping consumer confidence. The IMF published its findings in its economic review of the country.
The IMF, a multilateral organization, observed that economic activity should rebound in 2023 as high-contact services recover and investment in the Recovery Plan accelerates. It also highlighted that the use of European funds is speeding up, which is a positive sign for Spain. Yet it criticized the lack of comprehensive, systematic information on enforcement, including from the perspective of national accounting. That gap makes it hard to determine whether public resources are truly reaching the real economy.
In GDP terms, the IMF revised Spain’s growth forecast for 2022 up to 4.6 percent. This adjustment reflects the inclusion of the latest growth data available for the second quarter; the previous October projection had already been cautious. The 2023 forecast remained at 1.2 percent. Under these projections, Spain is not anticipated to return to its pre pandemic level before early 2024.
The IMF warned that the outlook carries substantial uncertainty and that the main risks are to the downside. Energy prices, including electricity and natural gas, pose a major challenge, while a slower-than-expected global slowdown and tighter financial conditions driven by the European Central Bank’s rate hikes add further risk.
Debt and pensions
On the debt front, IMF analysts believe Spain’s public debt remains elevated and that a steady consolidation path is required. The government’s response to the outbreak was deemed effective in mitigating its immediate effects, though it raised the debt-to-GDP ratio to about 118 percent. The IMF views maintaining a primary deficit target in the 2023 interim budget plan of roughly 0.3 percentage points as appropriate, provided that revenue rises and energy-related spending is kept in check.
Looking ahead, the IMF recommends a gradual adjustment of about 0.6 percentage points per year from 2024 to steer Spain toward a nearly balanced fiscal position by 2030. On pensions, the IMF sees the need for additional measures to counter future spending growth linked to indexation to inflation. By 2050, the envisaged policy shifts would raise pension outlays to around 3.25 percent of GDP. The IMF cautions that only some of this rise would be offset by other reforms introduced in the early phase of the pension reform. It also notes that 2022 measures, such as reforming the self-employed bonus system, could yield positive financial effects, contingent on design specifics.
IMF results
The IMF identifies several factors behind Spain’s comparatively slower productivity and output growth relative to peer economies. It points to cross-cutting issues including the high share of small and medium-sized enterprises, a larger incidence of temporary employment, and skill mismatches in the labor market.
On the bright side, the IMF positively assesses the Starting Law and the Create and Grow Law, alongside reforms in the vocational education system. It also notes that more progress is needed to reduce the number of regulatory thresholds tied to firm size and to harmonize regulatory differences across regions.
When it comes to employment, the IMF acknowledges the labor reforms enacted in December 2021 and says they produced positive results in terms of increased permanent employment. However, it also cautions that it is too early to evaluate the full impact of these reforms.
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