IMF Ups Forecast for Spain Economy

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The International Monetary Fund, the well-respected global agency, has doubled its forecast for Spain’s economic growth in the next two years, based on what it sees as improving economic fundamentals.

“The economy has turned the corner, recovery is on the right track and the outlook is better than it was a year ago thanks to society’s efforts and adopted measures,” James Daniel, head of the mission to Spain, told reporters.

The IMF has adjusted its growth forecast for Spain in 2014 from 0.6 per cent to 1.2 per cent. In 2015 the growth rate is expected to improve to 1.5 per cent, with a steady increase to 2.0 per cent in 2019.

Any optimism about the domestic economy is good news for the property market. The Bank of Spain recently predicted that growth could hit The Bank of Spain suggested this week that growth could reach 2 per cent next year, but the IMF is still more conservative in its estimates, noting many of the factors holding back the market, in particular the banking system.

“While the banking system is now much stronger and safer and lending conditions are starting to ease, credit is still contracting faster than desirable,” the report states. “Thus banks should continue to raise capital levels over time, including by limiting cash dividends and bonuses, and reducing costs.”

Spain’s government will also have to adjust for the tax cuts announced last month.

“What we’ve seen so far is revenue losing,” Mr. Daniel said. “That will need to be compensated by further measures in the future.”
The report insists that “Spain’s overarching policy priority must be to ensure the recovery is strong, long-lasting, and most pressingly, job-rich.” Even optimistic government forecasts still peg unemployment at close to 20 per cent in 2017, the report notes.

But IMF focused on positive signs suggesting that Spain’s economy has turned the corner.

“The recovery is clearly under way and, critically, labour market trends are improving,” the IMF report concludes.



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