IMF Executive Board Concludes 2024 Article IV Consultation with Spain
IMF News, June 6, 2024
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- Published: June 6, 2024
Economic performance and near-term outlook
- Growth was 2.5 percent in 2023 and is projected to reach 2.4 percent in 2024 and 2.1 percent in 2025, driven primarily by stronger domestic demand growth.
- Main recent growth drivers: robust services export performance and public consumption.
- Private consumption expected to strengthen as the household saving rate normalizes gradually and real wage income continues to increase steadily.
- Private investment remains below end-2019 levels; projected to benefit from easing financial conditions and continued disbursement of Next Generation EU (NGEU) grants.
- Investment contributed to low productivity growth.
- Headline inflation has fallen significantly from its 2022 peak; core inflation is on a downward trend due to passthrough of energy disinflation to processed food and non-energy industrial goods prices.
- Both headline and core inflation are forecast to decline further throughout 2024-25, nearing the ECB’s 2-percent target before mid-2025.
- Labor market: sustained strong performance, supported by significant migration inflows and increasing labor force participation; unemployment remains the highest in the euro area despite a significant decline.
Risks and uncertainty
- Outlook uncertainty described as more balanced but risks remain:
- Growth risks tilted to the downside: domestic political fragmentation, potential under-execution of NGEU funds, a global slowdown, and geo-economic fragmentation.
- Inflation risks tilted to the upside: potential rebound in global energy prices and faster-than-expected increases in unit labor costs.
Executive Board assessment and policy advice
- Directors commended Spain’s strong economic resilience and labor market performance and noted a favorable outlook with robust growth and declining inflation.
- Fiscal policy:
- Welcome continued improvement in public finances and authorities’ commitment to fiscal discipline despite difficult political setting.
- Call for a sustained, growth-friendly fiscal consolidation embedded in an explicit medium-term fiscal plan focused on reducing tax inefficiencies and broadening the tax base to rebuild fiscal buffers and keep debt on a downward path.
- Emphasized need to ensure windfall levies on banks and energy companies, if made permanent, are appropriately designed to minimize possible distortions.
- Highlighted importance of adopting a balanced set of measures as needed to ensure the sustainability of the pension system.
- Financial sector:
- Highlighted resilience of the financial sector against tighter financial conditions.
- Supported recommendations of the Financial Sector Assessment Program to further strengthen financial supervision and crisis management.
- Stressed need to increase bank capital buffers to support banking system resilience and preserve credit extension in severe adverse shocks.
- Welcomed Bank of Spain’s intention to raise the neutral countercyclical capital buffer.
- Labor market and reforms:
- Commended unprecedented decline in temporary employment following the 2021 labor market reform.
- Noted structural unemployment remains the highest in the euro area; encouraged continued efforts to reduce labor market dualism and better integrate active and passive labor market policies.
- Stressed careful design of future labor market policy initiatives to avoid unintended effects on employment and growth.
- NextGeneration EU funds and housing:
- Welcomed steady progress implementing Spain’s ambitious recovery plan.
- Urged optimization of NGEU fund use through improved coordination at all government levels and focus on productivity-enhancing reforms and investments.
- Pointed out boosting housing supply is key to improving housing affordability.
Selected economic indicators (annual percentage change, unless noted)
- Gross domestic product: 6.4 (2021), 5.8 (2022), 2.5 (2023), 2.4 (2024), 2.1 (2025), 1.8 (2026)
- Private consumption: 7.1 (2021), 4.7 (2022), 1.9 (2023), 2.3 (2024)
- Public consumption: 3.4 (2021), -0.2 (2022), 3.8 (2023), 0.9 (2024), 1.2 (2025), 0.5 (2026)
- Gross fixed investment: 2.8 (2021), 0.8 (2022), 4.5 (2023), 4.8 (2024), 2.2 (2025)
- Total domestic demand: 6.7 (2021), 3.0 (2022), 1.7 (2023)
- Net exports (contribution to growth): 2.9 (2021), 0.0 (2022), -0.1 (2023)
- Exports of goods and services: 13.5 (2021), 15.2 (2022), 3.1 (2023)
- Imports of goods and services: 14.9 (2021), 7.0 (2022), 0.3 (2023), 4.0 (2024), 3.6 (2025)
- Potential output growth: 1.6 (2021)
- Output gap (percent of potential): -4.2 (2021), -0.4 (2022), 0.2 (2023), 0.4 (2024), 0.1 (2025)
- GDP deflator: 2.6 (2021), 4.2 (2022), 5.9 (2023)
- HICP (average): 8.3 (2022)
- HICP (end of period): 6.6 (2022), 5.5 (2023), 3.3 (2024)
- Core inflation (average): 0.7 (2021), 5.2 (2022)
- Core inflation (end of period): 4.6 (2022)
- Unemployment rate (percent): 13.0 (2021), 12.2 (2022), 11.8 (2023), 11.5 (2024), 11.2 (2025)
- Labor costs, private sector: 5.6 (2021), 3.5 (2022)
- Employment growth: 1.3 (2021)
- Current account balance (percent of GDP): 0.6 (2021), 2.0 (2022)
- Net international investment position: -71.0 (2021), -60.0 (2022), -52.8 (2023), -46.5 (2024), -41.4 (2025), -37.1 (2026)
- General government balance (percent of GDP): -6.7 (2021), -4.7 (2022), -3.6 (2023), -3.0 (2024), -2.9 (2025), -3.1 (2026)
- Primary balance: -4.8 (2021), -2.6 (2022), -1.8 (2023), -0.6 (2024), -0.3 (2025)
- Structural balance: -4.1 (2021), -4.5 (2022), -3.7 (2023), -3.2 (2024)
- General government debt: 116.8 (2021), 111.6 (2022), 107.7 (2023), 105.6 (2024), 104.4 (2025), 104.3 (2026)
- Note: The projections incorporate spending financed by the EU Recovery and Resilience Facility (including the grant and the loan component) amounting to about 0.4, 0.9, 1.0, 1.0, 1.0, 0.9, and 0.2 percent of GDP from 2021 to 2027.
IMF Press Release No. 24/207 — Executive Board concluded the Article IV consultation with Spain on June 5, 2024.