## IMF Executive Board Concludes 2021 Article IV Consultation with Spain

_IMF News, February 15, 2022_

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## Bibliographic details
- Published: February 15, 2022

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### Overview and recent developments
- The IMF Executive Board concluded the Article IV consultation with Spain on February 14, 2022.
- The Spanish economy is recovering from the deep recession caused by the COVID pandemic amid recurrent waves of infections.
- A highly successful vaccination campaign helped limit the impact of the virus on hospitalizations, mobility, and economic activity in 2021.
- Employment has rebounded robustly and is already above pre-crisis levels.
- Economic growth in 2021 was 5 percent.
- Output remains significantly below its pre-pandemic level because of the slow recovery of contact-intensive sectors and persistent global supply bottlenecks.
- Headline inflation reached a 30-year high in December, mainly driven by the strong base effect from prices declines in 2020 and the continued rise in natural gas prices.
- Supportive policies have protected jobs, household incomes, and firm balance sheets; financial sector risks have evolved favorably so far.
- Public debt ratio was about 120 percent of GDP in 2021.

### Outlook and projections
- Economic activity is projected to grow 5.8 percent in 2022, reaching the pre-pandemic level of output by the end of the year.
- The Omicron-driven wave of infections is expected to have only a moderate impact on economic activity.
- Recovery drivers:
  - Robust private consumption.
  - A boost of public investment financed in part by Next Generation EU (NGEU) funds.
  - A gradual normalization in international tourism flows.
- Inflation outlook:
  - Headline inflation likely to remain elevated in early 2022 due to high energy prices and supply-chain disruptions.
  - Inflation should moderate in the second half of the year as these factors dissipate.
- Key uncertainties and upside risks:
  - Outlook highly uncertain; depends on evolution of the pandemic and persistence of global supply bottlenecks.
  - Upside: faster unwinding of households’ accumulated savings could boost consumption more than expected.
  - Pace of absorption and effectiveness of use of NGEU funds will affect growth in coming years.
- Projection footnote:
  - The projections incorporate allocation from the EU Recovery and Resilience Facility amounting to about 0.8 percent, 1.9 percent, 1.6 percent, and 1.3 percent of GDP from 2021 to 2024.

### Executive Board assessment
- Directors commended the authorities’ comprehensive policy response to the pandemic and successful vaccination campaigns.
- Recovery and risks:
  - Recovery is ongoing and employment has recovered strongly.
  - Output remains below pre-pandemic levels and the outlook is clouded by elevated uncertainty and risks.
- Fiscal policy guidance:
  - Support should remain flexible until the recovery is broadly entrenched.
  - Prudent policies needed over the medium-term to support macro-financial stability and promote sustainable, greener, and inclusive growth.
  - Fiscal policy should remain supportive in the short-term and become increasingly targeted to support the vulnerable.
  - As recovery takes hold, public debt should be gradually reduced to rebuild fiscal space to respond to future shocks.
  - An early formulation of a credible medium-term fiscal consolidation plan could help build social consensus and support investor confidence.
  - Importance of ensuring the sustainability of the pension system was noted.
- Financial sector guidance:
  - The financial sector has weathered the crisis well; close monitoring is needed to ensure continued resilience.
  - Authorities encouraged to be forward-looking in assessment and supervision, and to ensure adequate buffers and prudent levels of provisioning in the banking sector.
  - Directors appreciated efforts to strengthen the macroprudential toolkit and private debt resolution frameworks.
- Structural reforms and investment:
  - Directors commended the comprehensive structural reform and investment agenda.
  - NGEU funds provide an exceptional opportunity to support the recovery while promoting a transition to a more productive, inclusive, greener, and digital economy.
  - Importance of establishing a framework to ensure a transparent and efficient use of the investment funds was highlighted.
- Labor market and education:
  - Directors welcomed the recently approved labor reform aimed at addressing long-standing deficiencies while balancing protection for workers with flexibility for firms.
  - Noted high ownership derived from broad dialogue with social partners.
  - Stressed importance of strengthening education and active labor market policies to facilitate upskilling and sectoral reallocation, and underscored the importance of coordination to ensure effectiveness.
  - Impact of reforms, including on public finances, should be closely monitored; making permanent contracts more attractive to firms was seen as important.
- Climate policy:
  - Directors welcomed recently adopted ambitious climate mitigation objectives.
  - Saw merit in increasing carbon pricing in a gradual and predictable way, while protecting vulnerable households.
  - Complementary policies will be essential to address sector-specific mitigation challenges.
  - Directors welcomed authorities’ plans to leverage NGEU funds to support green investments.

### Key economic indicators (selected figures from the report)
- Growth and demand (percent change unless otherwise indicated):
  - Gross domestic product: 2019: 2.1; 2020: -10.8; 2021: 4.9; 2022: 5.8; 2023: 3.8; 2024: 2.3; 2025: 1.9; 2026: 1.7; 2027: 1.6.
  - Private consumption: 2019: 1.0; 2020: -12.0; 2021: 5.1; 2022: 4.7; 2023: 3.3; 2024: 2.4; 2025: 3.0; 2026: 2.6; 2027: 2.2.
  - Gross fixed investment: 2019: 4.5; 2020: -9.5; 2021: 7.0; 2022: 7.1; 2023: 0.5; 2024: 0.6; 2025: 1.3.
  - Exports of goods and services: 2019: 2.5; 2020: -20.2; 2021: 12.4; 2022: 9.9; 2023: 4.6; 2024: 3.7.
  - Imports of goods and services: 2019: 1.2; 2020: -15.2; 2021: 12.0; 2022: 5.9; 2023: 3.6; 2024: 3.5.
  - Real GDP per capita: 2021: -11.3; 2022: 4.8; 2023: 5.4; 2024: 1.5.
- Savings-Investment Balance (percent of GDP):
  - Gross domestic investment: 2019: 20.9; 2020: 20.7; 2021: 21.0; 2022: 21.2; 2023: 21.6; 2024: 21.8; 2025: 21.4; 2026: 21.1; 2027: 20.9.
  - National savings: 2019: 23.0; 2020: 21.5; 2021: 22.5; 2022: 23.2; 2023: 23.5; 2024: 23.1; 2025: 22.8; 2026: 22.7.
  - Foreign savings: 2019: -2.1; 2020: -0.8; 2021: -0.4; 2022: -1.3; 2023: -1.6; 2024: -1.7.
  - Household saving rate (percent of gross disposable income): 2019: 8.3; 2020: 14.9; 2021: 11.0; 2022: 6.5; 2023: 6.4; 2024: 6.3.
- Labor and prices:
  - Potential output growth 2021: -2.0.
  - Output gap (percent of potential): 2019: -8.5; 2020: -5.4; 2021: 0.1.
  - Headline inflation (average): 2019: 0.7; 2020: -0.3; 2021: 3.1.
  - Headline inflation (end of period): 2019: 0.8; 2020: -0.5; 2021: 1.8.
  - Unemployment rate (percent): 2019: 14.1; 2020: 15.5; 2021: 15.0; 2022: 14.0; 2023: 13.5; 2024: 13.3; 2025: 13.1; 2026: 13.0.
  - Labor productivity (output per full-time equivalent worker): 2021: -3.5; 2022: -1.5; 2023: 2.8.
  - Labor costs, private sector: 2021: 4.0.
- External and public finance:
  - Net international investment position: 2019: -75.0; 2020: -85.5; 2021: -78.7; 2022: -69.9; 2023: -63.5; 2024: -58.0; 2025: -53.9; 2026: -50.1; 2027: -46.4.
  - General government balance (percent of GDP): 2019: -11.0; 2020: -7.8; 2021: -5.3; 2022: -4.3; 2023: -4.0; 2024: -3.8.
  - Primary balance: 2019: -5.8; 2020: -2.5; 2021: -2.3.
  - Structural balance: 2019: -3.1; 2020: -5.7; 2021: -4.5; 2022: -4.4; 2023: -4.1.
  - General government debt: 2019: 95.5; 2020: 120.0; 2021: 120.4; 2022: 117.0; 2023: 115.8; 2024: 115.4; 2025: 115.5; 2026: 115.6; 2027: 115.9.
- Fiscal projection assumptions:
  - Fiscal projections from 2022 onwards assume an expiration of temporary COVID-19 measures and no further policy change.

*Press Release No. 22/39 — IMF Executive Board Concludes 2021 Article IV Consultation with Spain (February 15, 2022).*

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## References

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