IMF Executive Board Concludes 2020 Article IV Consultation with Spain
IMF News, November 13, 2020
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- Published: November 13, 2020
Pandemic impact and economic context
- Spain experienced the largest contraction in the first half of the year (12.8 percent) among major advanced economies.
- The magnitude of the drop reflects: strict lockdown measures required by the scale of infections; structural vulnerabilities including a high prevalence of small and medium size enterprises, importance of tourism, and widespread use of temporary employment contracts.
- The gradual relaxation of confinement measures supported activity during the summer, but the severity of the second wave of infections is worrying.
- Mitigating the impact on the economy is taking a toll on government finances, with the public debt ratio expected to increase to about 120 percent of GDP in 2020.
Policy response and immediate effects
- Income and liquidity support measures have curbed the economic fallout.
- The short-time work scheme (ERTE) has been critical to limit the impact on unemployment.
- The banking sector—backed by public loan guarantees and the ECB’s accommodative monetary policy—has continued to support the real economy with credit intermediation.
- Public debt implications: public debt ratio expected to increase to about 120 percent of GDP in 2020.
Outlook and baseline projections
- Under a baseline scenario without new widespread strict containment measures:
- Activity is forecast to contract by about 12 percent in 2020, and partially recover by about 7 percent in 2021.
- The recovery rests on a strong rebound in private consumption and a substantial increase in public investment financed mainly by a front-loaded utilization of funds under the EU Recovery and Resilience Facility (RRF).
- The outlook is highly uncertain, with risks heavily tilted to the downside and crucially dependent on:
- containment of the second wave of infections;
- size, timing, and composition of EU-funded additional spending;
- success of policy measures to mitigate scarring.
Executive Board assessment and recommendations
- Directors noted the severe human and economic toll: tragic loss of lives, higher unemployment, and sharp recession; recovery will be protracted and subject to significant risks.
- Commended the authorities for swift and forceful income and liquidity support.
- Recommended continued policy support until recovery is firmly underway, with flexibility to adapt to evolving developments.
- As the pandemic recedes, advised that fiscal support become increasingly targeted at vulnerable groups and viable firms, facilitating resource reallocation toward expanding sectors.
- Urged urgency in addressing corporate vulnerabilities:
- Prioritize targeted equity support to viable firms, with a well-designed exit strategy.
- Strengthen private debt resolution frameworks and expand capacity of commercial courts.
- Financial sector guidance:
- Noted strength of the financial system.
- Emphasized need for continued strong supervision, together with relief measures and prudent dividend policies.
- Welcomed efforts to strengthen the AML/CFT framework.
- Encouraged enhancing crisis management frameworks at national and European levels by tackling shortcomings in resolution and liquidation regimes.
- On European funds and reforms:
- Welcomed authorities’ intention to use European funds to support near-term recovery while promoting a structural shift to a more productive, greener, and digital economy.
- Stressed need for efficient coordination, implementation, and oversight of recovery plans.
- Medium-term fiscal stance:
- Agreed that fiscal consolidation will be needed to rebuild buffers and put debt on a downward path.
- Welcomed efforts to enhance tax progressivity and revenue collection capacity, and encouraged further pension reforms.
- Social policy and labor market:
- Noted pandemic exacerbated already high socio-economic disparities.
- Welcomed introduction of the Minimum Income Scheme.
- Encouraged more retraining and reskilling for displaced workers, upgrading unemployment benefits, addressing labor market duality, and improving gender equality.
Key statistics and projections (as presented)
- Gross domestic product (percent change): 2015: 3.8; 2016: 3.0; 2017: 2.9; 2018: 2.6; 2019: 2.0; 2020: -12.8; 2021: 7.2; 2022: 4.5.
- Private consumption (percent change): 2015: 2.7; 2016: 1.8; 2017: 1.1; 2018: -14.8; 2019: 9.1; 2020: 4.8.
- Gross fixed investment (percent change): 2015: 4.9; 2016: 2.4; 2017: 5.9; 2018: 5.3; 2019: -16.2; 2020: 10.3.
- Total domestic demand (percent change): 2015: 4.1; 2016: 2.1; 2017: 3.1; 2018: 1.5; 2019: -11.4; 2020: 4.0.
- Exports of goods and services (percent change): 2015: 4.3; 2016: 5.4; 2017: 5.6; 2018: 2.2; 2019: -25.5; 2020: 10.1; 2021: 12.9.
- Imports of goods and services (percent change): 2015: 5.1; 2016: 6.6; 2017: 3.3; 2018: 1.2; 2019: -22.3; 2020: 10.6; 2021: 11.7.
- Gross domestic investment (percent of GDP): 2015: 19.0; 2016: 18.8; 2017: 19.4; 2018: 20.4; 2019: 20.8; 2020: 20.3; 2021: 20.9.
- National savings (percent of GDP): 2015: 21.0; 2016: 21.9; 2017: 22.1; 2018: 22.3; 2019: 22.8; 2020: 21.7.
- Foreign savings (percent of GDP): 2015: -2.0; 2016: -3.2; 2017: -2.7; 2018: -1.9; 2019: -0.5; 2020: -0.9; 2021: -1.3.
- Household saving rate (percent of gross disposable income): 2015: 7.0; 2016: 5.5; 2017: 7.4; 2018: 13.1; 2019: 8.2; 2020: 6.4.
- Private sector debt (percent of GDP): 2015: 222.0; 2016: 213.0; 2017: 203.4; 2018: 196.9; 2019: 189.8; 2020: 208.9; 2021: 195.8; 2022: 186.9.
- Corporate debt (percent of GDP): 2015: 149.9; 2016: 144.2; 2017: 137.7; 2018: 133.3; 2019: 127.6; 2020: 136.9; 2021: 126.1; 2022: 118.8.
- Household debt (percent of GDP): 2015: 72.2; 2016: 68.9; 2017: 65.7; 2018: 63.6; 2019: 62.2; 2020: 72.0; 2021: 69.7; 2022: 68.1.
- Credit to private sector (percent change): 2015: -4.2; 2016: -4.1; 2017: -3.9; 2018: -1.5; 2019: 2.5; 2020: 1.4.
- Potential output growth (percent): 2015: 0.6; 2016: 0.9; 2017: 1.3; 2018: -2.5.
- Output gap (percent of potential): 2015: -4.6; 2016: -2.6; 2017: -10.0; 2018: -5.3.
- Unemployment rate (percent): 2015: 19.6; 2016: 17.2; 2017: 15.3; 2018: 14.1; 2019: 16.8; 2020: 15.7.
- Labor productivity (output per worker) (percent): 2015: -3.6; 2016: 3.4.
- Labor costs, private sector (percent): 2015: 0.1.
- Employment growth (percent): 2015: -4.9.
- Current account balance (percent of GDP): 2015: 3.2.
- Net international investment position (percent of GDP): 2015: -88.9; 2016: -85.5; 2017: -80.2; 2018: -74.4; 2019: -84.0; 2020: -75.4; 2021: -68.6.
- General government balance (percent of GDP): 2015: -5.2; 2016: -4.3; 2017: -3.0; 2018: -2.8; 2019: -14.1; 2020: -7.5; 2021: -5.8.
- Primary balance (percent of GDP): 2015: -0.7; 2016: -0.8; 2017: -11.7; 2018: -5.1; 2019: -3.4.
- Structural balance (percent of GDP): 2015: -2.4; 2016: -2.3; 2017: -3.1; 2018: -8.1; 2019: -4.4.
- General government debt (percent of GDP): 2015: 99.3; 2016: 99.2; 2017: 98.6; 2018: 97.6; 2019: 95.5; 2020: 123.0; 2021: 121.3; 2022: 120.4.
- Note on projections: The projections incorporate disbursements from the EU Recovery and Resilience Facility amounting to about 1.5 percent of GDP per year in 2021–24.
- Note on fiscal projections: The 2020 fiscal projections include the discretionary measures adopted in response to the COVID-19 crisis, the legislated pension and public wage increases, and the minimum vital income support. Fiscal projections from 2021 assume an expiration of temporary COVID-19 measures and no further policy change. Disbursements under the EU Recovery and Resilience Facility in 2021–24 are reflected as receipts in other revenue in the form of grants and spending in public investment.
- Note on headline balance: The headline balance includes financial sector support equal to 0.2 percent of GDP for 2016, and 0.1 percent of GDP for 2017.
IMF Executive Board Concludes 2020 Article IV Consultation with Spain (Press Release No. 20/339, November 13, 2020).
