IMF Executive Board Concludes 2018 Article IV Consultation with Spain
IMF News, November 21, 2018
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- Published: November 21, 2018
Growth outlook and external position
- Real GDP growth is projected to moderate to 2.5 percent in 2018 and 2.2 percent in 2019 before gradually slowing to its potential rate, estimated at around 1.75 percent over the medium term.
- Strong private consumption and investment demand were the main drivers of growth.
- The external position strengthened further, supported by continued current account surpluses, but is still moderately weaker than suggested by medium-term fundamentals.
- Savings-Investment Balance (percent of GDP) projections:
- Gross domestic investment: 22.2 (2018), 22.3 (2019)
- National savings: 23.0 (2018)
- Foreign savings: -1.0 (2018), -0.7 (2019), -0.8 (2020)
Labor market and productivity
- Unemployment rate fell to 14.6 percent (text) and table shows:
- Unemployment rate: 15.6 (2018), 14.7 (2019), 14.3 (2020)
- Significant challenges remain: Spain’s youth joblessness, the share of temporary contracts, and involuntary part-time employment remain among the highest in the EU.
- Directors encouraged policies to:
- Preserve the thrust of past labor market reforms.
- Address labor market duality.
- Strengthen active labor market policies.
- Enhance incentives for greater labor mobility across regions.
- Ensure wage flexibility and align wage increases with productivity growth.
Public finances and fiscal policy
- Public debt remains close to 100 percent of GDP.
- The headline fiscal deficit has continued to come down in 2017 and is projected to fall below the 3 percent of GDP Maastricht criterion in 2018.
- Much of the deficit reduction attributed to the strong economic cycle and low interest rates; there was no adjustment in the underlying fiscal position in 2018.
- Executive Directors called for rebuilding fiscal buffers and resuming structural fiscal consolidation to bring public debt down faster.
- Directors welcomed the authorities’ fiscal deficit target for 2019 and encouraged a sound package of measures plus contingency planning for potential fiscal shortfalls.
- Directors noted the government’s intention to raise additional revenues given the relatively low revenue-to-GDP ratio and recommended:
- Carefully designed revenue measures to limit distortions and negative growth implications.
- Gradual reduction in the number of goods and services that qualify for reduced VAT rates.
- Addressing tax system inefficiencies.
- Raising environmental taxes.
- Public finance figures (percent of GDP) from table:
- General government balance: -6.0 (2014), -5.3 (2015), -Primary balance: -4.0 (2013), -3.0 (2014), -2.6 (2015), -1.9 (2016)
- Structural balance: -2.5 (year not specified), -2.9 (year not specified)
- General government debt: 95.5 (2013), 100.4 (2014), 99.3 (2015), 99.0 (2016), 98.1 (2017), 97.3 (2018), 96.0 (2019), 94.8 (2020)
- Note: The 2019 projections assume unchanged fiscal policies except for the already legislated measures and the public wage increase agreed with the unions.
- Headline balance includes financial sector support measures equal to 3.7 percent of GDP for 2012, 0.3 percent of GDP for 2013, 0.1 percent of GDP for 2014, 0.05 percent of GDP for 2015, 0.2 percent of GDP for 2016, and 0.1 percent of GDP for 2017.
Private sector and banking sector health
- The private sector has deleveraged further amidst favorable lending conditions.
- Total private sector debt-to-GDP ratio fell by nearly 10 percentage points in 2017.
- Table values for private sector debt (percent of GDP):
- 241.4 (2013), 231.3 (2014), 217.8 (2015), 207.9 (2016), 199.6 (2017), 192.2 (2018), 185.7 (2019), 180.6 (2020)
- Corporate debt: 159.6 (2013), 153.7 (2014), 145.4 (2015), 138.9 (2016), 133.9 (2017), 128.1 (2018), 122.9 (2019), 118.6 (2020)
- Household debt: 81.8 (2013), 77.6 (2014), 72.3 (2015), 69.0 (2016), 65.6 (2017), 64.1 (2018), 62.8 (2019), 62.0 (2020)
- Credit to private sector: -10.2 (2013), -6.5 (2014), -4.2 (2015), -4.1 (2016), -2.0 (2017), -0.2 (2018), 1.2 (2019)
- Some segments of corporates and households are still overly leveraged; loans for consumer durables are expanding quickly, though from a low base.
- Nonperforming loans (NPLs) and foreclosed assets decline accelerated; however NPL ratio for lending in Spain was still at 6.4 percent in the second quarter of 2018.
- Spanish banks continue to lag European peers in terms of capital ratios.
- Directors stressed importance of:
- Banks continuing to raise high-quality capital.
- Rigorous management of liquidity and interest rate risks ahead of eventual gradual normalization of the ECB’s accommodative policies.
- Creation of a macroprudential authority and swift expansion of the Bank of Spain’s macroprudential toolkit.
Executive Board Assessment and policy recommendations
- Executive Directors welcomed continued strong economic growth and decline in unemployment but noted several downside risks clouding the medium-term outlook.
- Key Director recommendations:
- Persevere with policies and reforms to enhance economic resilience, reduce public debt, improve productivity, reduce inequality, and increase employment, especially long-term and youth employment.
- Resume structural fiscal consolidation and bring public debt down faster.
- Adopt a sound package of fiscal measures and plan contingency actions for potential fiscal shortfalls.
- Consider revenue measures to bring the deficit down, finance more social spending, and support lowering inequality—design measures carefully to limit distortions and negative growth implications.
- Safeguard pension system financial viability while enhancing social acceptability; avoid permanently linking pension growth to inflation without offsetting measures; pursue a comprehensive, transparent, and equitable approach to pension reforms.
- Preserve past labor market reforms’ thrust and address labor market duality.
- Raise productivity growth through policies that facilitate competition, foster innovation, address skills mismatches, dismantle barriers for firms to grow, and improve regional coordination to lower regional productivity disparities.
Key economic indicators (selected, percent change or percent of GDP as shown)
- Gross domestic product: -1.7 (2013), 1.4 (2014), 3.6 (2015), 3.2 (2016), 3.0 (2017), 2.5 (2018), 2.2 (2019), 1.9 (2020)
- Private consumption: -3.1 (2013), 1.5 (2014), 2.9 (2015), 2.4 (2016), 2.1 (2017), 1.7 (2018)
- Gross fixed investment: -3.4 (2013), 4.7 (2014), 6.7 (2015), 4.8 (2016), 5.8 (2017), 3.8 (2018), 2.7 (2019)
- Exports of goods and services: 4.3 (year unspecified), 4.2 (year unspecified), 5.2 (year unspecified)
- Imports of goods and services: 6.6 (year unspecified), 5.4 (year unspecified), 5.6 (year unspecified)
- Household saving rate (percent of gross disposable income): 9.6 (2013), 9.2 (2014), 8.7 (2015), 7.8 (2016), 5.5 (2017), 4.6 (2018)
- Net international investment position: -95.2 (2013), -98.0 (2014), -89.5 (2015), -85.3 (2016), -83.8 (2017), -79.5 (2018), -75.5 (2019), -71.7 (2020)
IMF Executive Board Concludes 2018 Article IV Consultation with Spain — Press Release No. 18/435
