{ "title": "Spain: Staff Concluding Statement of the 2025 Article IV Mission", "publication": "IMF News, April 10, 2025", "sourceUrl": "https://www.imf.org/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission", "overlayPath": "/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/index.md", "summary": "The Spanish economy has been performing strongly and growth is expected to remain significantly above the euro area average in the near term, before slowing gradually as its recent drivers normalize and demographic aging intensifies.", "publishDate": "2025-04-10", "sections": [ { "heading": "Recent Economic Developments and Outlook", "content": "- Growth and drivers\n - Economic activity grew by 3.2 percent in 2024, underpinned by a continued expansion of services exports and a pickup in domestic demand.\n - Private consumption accelerated, supported by real income gains from steady disinflation, solid nominal wage increases, and continued employment gains fueled by immigration.\n - Investment was more subdued, held back by multiple factors since the pandemic including elevated domestic policy uncertainty.\n - Much of the post-pandemic expansion relied on labor accumulation; income per capita gains have been more modest but have picked up recently as hourly labor productivity accelerated.\n- Inflation\n - Headline inflation declined from 3.4 to 2.9 percent between 2023 and 2024, driven by a slowdown in energy and food prices and a decline in core inflation.\n - Both headline and core inflation are projected to decline further and return close to the ECB’s target by end-2025, underpinned by a gradual moderation of nominal wages and energy price disinflation.\n- Growth projections and labor market\n - Annualized growth of over 3 percent observed since mid-2023 is expected to decline gradually, reducing GDP growth from 2.5 percent in 2025 to 1.8 percent in 2026.\n - Demographic aging would keep growth close to its medium-term potential of around 1.7 percent.\n - Consumption growth is projected to remain solid with continued real wage increases and a gradual decline in household saving rates.\n - Investment should pick up on lower interest rates, progress with the execution of Next Generation EU (NGEU) funds, and a rise in housing construction.\n - As growth slows, the unemployment rate will remain stable at around 11 percent over the medium term.\n- Risks\n - Most risks are to the downside, notably: a further escalation of trade measures (particularly those directly involving the EU), domestic political fragmentation that could hamper fiscal response, continued subdued investment, and more-persistent-than-expected increases in unit labor costs." }, { "heading": "Fiscal Policies", "content": "- Recent fiscal performance\n - Excluding the costs of the emergency response to the catastrophic DANA floods, the 2024 deficit fell below the authorities’ 3 percent of GDP target.\n - Revenues benefited from PIT and social security contributions due to labor market expansion, non-indexation of PIT brackets, and higher contribution rates following the 2021-23 pension reforms.\n- Fiscal vulnerabilities\n - Debt-to-GDP ratio of 101.8 percent as of end-2024.\n - Projected long-term rise in aging-related expenditures in pensions, health, and long-term care—of about 4 percent of GDP by 2050 according to AIReF.\n - Increasing defense spending to the authorities’ 2 percent of GDP target would require further resources.\n- Staff recommendations on adjustment and timing\n - Staff recommend frontloading the authorities’ planned 3 percent of GDP adjustment over 2025-2029 rather than 2025-2031.\n - Under staff’s baseline (no further measures beyond those implemented or approved), the deficit is projected to stabilize around 2 percent of GDP by 2030 versus 1.2 percent projected by the authorities based on the expenditure path included in their Medium-Term Fiscal and Structural Plan (MTFSP).\n - This implies measures of almost one percent of GDP have to be implemented to achieve the authorities’ MTFSP deficit path.\n - Fiscal policy should remain flexible: let automatic stabilizers play out and restrict temporary discretionary support to severe shocks provided sovereign funding costs remain low.\n- Revenue and spending measures\n - The MTFSP would benefit from a clearer strategy with well-identified tax increases and spending reduction priorities, including harmonizing VAT rates and enhancing green taxation—starting with equalizing diesel and gasoline excise duties.\n - The revamped bank tax should be discontinued at the end of its 3-year duration.\n - Strategic public spending efficiency reviews could identify budget savings.\n - Any increase in defense spending should be mostly budget-neutral and not compromise growth-enhancing spending, such as public investment.\n- Pension system and safeguard clause\n - Fiscal pressures from the projected growing gap between pension expenditures and social security contributions should be addressed, prioritizing employment-friendly measures.\n - Alternatives to raising contribution rates include further lengthening the period over which benefits are computed; complement with measures to encourage longer working lives (health, flexible work arrangements).\n - The recent introduction of delayed retirement incentives and more gradual retirement options are welcome.\n - The safeguard clause is currently triggered if average pension expenditures over 2022-2050 net of revenue measures taken over that same period exceed 13.3 percent of GDP.\n - Staff suggest the rule should instead focus on the future evolution of the gap between expenditures and revenues under a no-policy-change scenario, or at least clearly define ex ante a narrow set of direct revenue measures to enter the computation of net future spending, and consider a 25-year-ahead projection period rather than the currently fixed 2022-2050 window.\n- Fiscal framework for regions\n - Strengthen the fiscal framework of autonomous communities to ensure discipline.\n - Proposed partial relief of regions’ outstanding debt with the central government could facilitate their gradual return to bond markets, but relief should be conditional on credible consolidation plans.\n - Update and strictly enforce the national fiscal rule to align with the new EU governance framework and transposition of EU Directive 2024/1265; yearly fiscal target should focus on primary spending growth net of revenue measures.\n - Reform the Fondo de Liquidez Autonómico (FLA) so it functions only as a last-resort borrowing source; strengthen lending conditionality and pair with enforcement of regional consolidation plans." }, { "heading": "Financial Policies", "content": "- System health and resilience\n - Banks are resilient with comfortable capital and liquidity buffers, though CET1 ratios are somewhat below euro area peers.\n - Bank profitability has been strong, provisioning prudent, and asset quality solid; low and stable non-performing loans.\n - Households have maintained low debt levels; firms have continued to deleverage with comfortable interest coverage ratios.\n - Corporate insolvencies have stayed low; monitor risk of court congestion from rising individual filings after insolvency reform.\n- Countercyclical capital buffer (CCyB)\n - The phased introduction of the positive neutral CCyB is welcome.\n - Two-step CCyB implementation: 0.5 percent introduced in October 2024, with another 0.5 percent planned for October 2025.\n - Given current capital levels and profitability, banks are expected to meet the new buffer without restricting lending.\n - Banks should be encouraged to maintain adequate voluntary buffers through prudent dividend distributions as the CCyB is phased in.\n- FSAP and other measures\n - Authorities are making good progress on 2024 IMF FSAP recommendations, though further actions are needed on items requiring inter-agency coordination or legislative changes.\n - Follow-through is essential to keep systemic financial risks at bay.\n- Housing market and macroprudential policy\n - Rapid housing price growth is not posing financial stability risks at this stage: in real terms prices remain significantly below 2007 levels, household leverage is low, and no material loosening of lending standards observed.\n - Close monitoring warranted; preemptive borrower-based macroprudential measures should be considered if early signs of riskier lending emerge.\n - Affordability has eroded due to price and rent increases and still high borrowing costs.\n - Government’s package of measures announced in January is broadly welcome, with priority on boosting supply: advance amendments to the Land Law, address red tape in licensing, and expand social housing stock.\n - In areas with less acute land scarcity, narrowly-targeted demand-side measures (e.g., public guarantees for young first-time homeowners) could improve access.\n - Rent controls should be reevaluated and discontinued if found to reduce regular rental supply or hinder access for lower-income households." }, { "heading": "Structural Policies", "content": "- Employment and productivity challenges\n - Spain’s employment rate remains among the lowest in the euro area; the productivity shortfall is still as wide as in the early 2000s.\n - Fostering income-per-capita convergence requires raising the employment rate and boosting productivity.\n- Active labor market policies (ALMP) and benefits\n - Enhance ALMP and financial incentives for jobseekers.\n - Expand unemployment assistance reform by strengthening activation requirements, allowing longer combination of work income with benefits, and eventually replacing non-employment benefits with an integrated in-work tax credit.\n - Give greater weight to job placement improvements when distributing funds to regional Public Employment Service agencies.\n - Conditional on improved performance, increase the ALMP budget (currently significantly below successful European countries) to strengthen intermediation via staffing, digitalization, and private-sector collaboration.\n- Working time and minimum wage considerations\n - Government’s planned reduction of the working week in the private sector should be carefully designed to mitigate adverse effects on output and workers’ incomes.\n - Implementation would raise the cumulative increase in the minimum wage since 2018 to over 70 percent, raising concerns about potential adverse impacts on disadvantaged groups.\n - Preserve the strong role of collective bargaining to accommodate cross-sectoral heterogeneity in hours distribution and overtime remuneration.\n- Scaling up firms and innovation ecosystem\n - Priorities to lift productivity include facilitating firms’ scaling up, expanding financing for young innovative firms, and strengthening the university system.\n - Facilitating scaling up: advance Regime 20 to harmonize and simplify regulation and administrative burdens; streamline size-dependent policies that disincentivize growth.\n - Expanding financing: strengthen domestic tax incentives for young firms and address lack of information about them among institutional investors to promote venture capital.\n - Strengthening universities: build on the 2023 reform by increasing autonomy in recruitment/promotion/remuneration of professors, make curricula more responsive to labor market demands, strengthen research collaboration with businesses, and increase performance-based public funding." }, { "heading": "Mission closing", "content": "- The mission team thanks the authorities and all counterparts for their hospitality, frank and open discussions, and collaboration.\n- Note: This statement incorporates the impact of trade measures announced up to April 8, 2025.\n\nSource: Spain: Staff Concluding Statement of the 2025 Article IV Mission (April 10, 2025).\n\n---\n\n\n References\n\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- 2024 IMF Financial Stability Assessment Program\n- large intra-EU trade barriers\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/bundle-manifest.json)", "Published: April 10, 2025", "Growth and drivers", "Inflation", "Growth projections and labor market", "Risks", "Recent fiscal performance", "Fiscal vulnerabilities", "Staff recommendations on adjustment and timing", "Revenue and spending measures", "Pension system and safeguard clause", "Fiscal framework for regions", "System health and resilience", "Countercyclical capital buffer (CCyB)", "FSAP and other measures", "Housing market and macroprudential policy", "Employment and productivity challenges", "Active labor market policies (ALMP) and benefits", "Working time and minimum wage considerations", "Scaling up firms and innovation ecosystem", "The mission team thanks the authorities and all counterparts for their hospitality, frank and open discussions, and collaboration.", "Note: This statement incorporates the impact of trade measures announced up to April 8, 2025.", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[2024 IMF Financial Stability Assessment Program](https://www.imf.org/en/Publications/CR/Issues/2024/06/06/Spain-Financial-System-Stability-Assessment-549927)", "[large intra-EU trade barriers](https://www.imf.org/en/Publications/WP/Issues/2025/02/14/Europes-Productivity-Weakness-Firm-Level-Roots-and-Remedies-561771)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/index.md", "json": "/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2025/04/10/mcs-041025-spain-staff-concluding-statement-of-the-2025-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:45:31.984Z" }