IMF Executive Board Concludes 2020 Article IV Consultation with Spain

November 13, 2020

Washington, DC: On November 11, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Spain.

The COVID-19 pandemic has hit Spain’s society and economy severely following five years of strong job-rich growth. 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 the scale of the infectious spread, which required strict lockdown measures, and structural features that make the economy more vulnerable to disruptions, such as 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 breathed some life into activity during the summer, but the severity of the second wave of infections is worrying.

A suite of income and liquidity support measures has curbed the economic fallout of the pandemic. The short-time work scheme (ERTE) has been critical to limit the impact on unemployment. The banking sector—backed by policy measures such as public loan guarantees and the ECB’s accommodative monetary policy—has continued to support the real economy with credit intermediation, in contrast with the global financial crisis. 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.

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 will crucially depend on the containment of the second wave of infections; size, timing, and composition of EU-funded additional spending; as well as on the success of policy measures to mitigate the scarring.

Executive Board Assessment [2]

Executive Directors noted that the COVID-19 pandemic has severely hit Spain’s economy and society, causing a tragic loss of lives, higher unemployment, and a sharp economic recession. The recovery will be protracted and subject to significant risks and uncertainty. The near-term outlook will crucially depend on the effectiveness of new containment measures and preparedness of the healthcare system.

Directors commended the authorities for their swift and forceful implementation of income and liquidity support measures to mitigate the economic and social fallout of the pandemic. They stressed the importance of continued policy support until the recovery is firmly underway while maintaining flexibility to adapt it to evolving developments. Directors agreed that, as the pandemic recedes, fiscal support should become increasingly targeted at vulnerable groups and viable firms, facilitating resource reallocation toward expanding sectors.

Directors highlighted the urgency of addressing corporate vulnerabilities. They recommended prioritizing targeted equity support to viable firms, with a well-designed exit strategy. They encouraged continued efforts to strengthen private debt resolution frameworks and expand the capacity of commercial courts.

Directors noted the strength of the financial system, which has helped mitigate the economic impact of the crisis. They emphasized the need for continued strong supervision, together with relief measures and prudent dividend policies. Directors welcomed efforts to strengthen the AML/CFT framework. They also encouraged enhancing the crisis management frameworks both at the national and European levels by tackling any shortcomings in the resolution and liquidation regimes.

Directors welcomed the authorities’ intention to use European funds to support the near-term economic recovery while promoting a structural shift to a more productive, greener, and digital economy, in line with the policy priorities of the national recovery plans. They stressed the need for efficient coordination, implementation, and oversight of plans.

Directors agreed that, over the medium term, fiscal consolidation will be needed to rebuild buffers and put debt on a downward path. They welcomed ongoing efforts to enhance tax progressivity and revenue collection capacity, and encouraged further pension reforms.

Directors noted that the pandemic has exacerbated already high socio-economic disparities in Spain. They welcomed the efforts to strengthen the social safety net with the introduction of the Minimum Income Scheme. They encouraged more retraining and reskilling for displaced workers, upgrading unemployment benefits, addressing labor market duality, and improving gender equality.


Spain: Main Economic Indicators (October 2019 WEO)

(Percent change unless otherwise indicated)

Projections 1/

2015

2016

2017

2018

2019

2020

2021

2022

Demand and supply in constant prices

Gross domestic product

3.8

3.0

2.9

2.6

2.0

-12.8

7.2

4.5

Private consumption

2.9

2.7

3.0

1.8

1.1

-14.8

9.1

4.8

Public consumption

2.0

1.0

1.0

1.9

2.3

3.7

0.2

1.0

Gross fixed investment

4.9

2.4

5.9

5.3

1.8

-16.2

10.3

4.9

Total domestic demand

4.1

2.1

3.1

2.7

1.5

-11.4

7.2

4.0

Net exports (contribution to growth)

-0.1

1.0

-0.1

-0.3

0.5

-1.7

0.0

0.5

Exports of goods and services

4.3

5.4

5.6

2.2

2.6

-25.5

10.1

12.9

Imports of goods and services

5.1

2.7

6.6

3.3

1.2

-22.3

10.6

11.7

Savings-Investment Balance (percent of GDP)

Gross domestic investment

19.0

18.8

19.4

20.4

20.8

20.3

20.8

20.9

National savings

21.0

21.9

22.1

22.3

22.8

20.8

21.7

22.1

Foreign savings

-2.0

-3.2

-2.7

-1.9

-2.0

-0.5

-0.9

-1.3

Household saving rate
(percent of gross disposable income)

7.2

7.0

5.5

5.9

7.4

13.1

8.2

6.4

Private sector debt (percent of GDP)

222.0

213.0

203.4

196.9

189.8

208.9

195.8

186.9

Corporate debt

149.9

144.2

137.7

133.3

127.6

136.9

126.1

118.8

Household debt

72.2

68.9

65.7

63.6

62.2

72.0

69.7

68.1

Credit to private sector

-4.2

-4.1

-2.0

-3.9

-1.5

2.5

1.4

1.5

Potential output growth

0.6

0.9

1.1

1.3

1.5

-2.5

1.8

1.5

Output gap (percent of potential)

-4.6

-2.6

-0.9

0.2

0.6

-10.0

-5.3

-2.5

Prices

GDP deflator

0.5

0.3

1.4

1.1

1.6

0.5

0.9

1.4

HICP (average)

-0.6

-0.3

2.0

1.7

0.7

-0.2

0.8

1.4

HICP (end of period)

-0.1

1.4

1.2

1.2

0.8

-0.3

0.8

1.6

Core inflation (average)

0.6

0.8

1.1

0.9

0.9

0.8

0.6

1.4

Core inflation (end of period)

1.0

0.9

0.9

0.9

1.0

0.8

0.6

1.4

Employment and wages

Unemployment rate (percent)

22.1

19.6

17.2

15.3

14.1

16.8

16.8

15.7

Labor productivity 2/

0.6

0.2

0.0

-0.2

-0.3

-3.6

3.4

2.3

Labor costs, private sector

0.2

0.1

0.7

2.0

2.3

0.6

0.8

1.4

Employment growth

3.0

2.7

2.6

2.7

2.3

-4.9

1.0

2.1

Balance of payments (percent of GDP)

Current account balance

2.0

3.2

2.7

1.9

2.0

0.5

0.9

1.3

Net international investment position

-88.9

-85.5

-85.5

-80.2

-74.4

-84.0

-75.4

-68.6

Spain: Main Economic Indicators (October 2019 WEO) (concluded)

(Percent change unless otherwise indicated)

Projections 1/

2015

2016

2017

2018

2019

2020

2021

2022

Public finance (percent of GDP) 3/ 4/

General government balance

-5.2

-4.3

-3.0

-2.6

-2.8

-14.1

-7.5

-5.8

Primary balance

-2.6

-1.9

-0.7

-0.3

-0.8

-11.7

-5.1

-3.4

Structural balance

-2.4

-2.7

-2.5

-2.3

-3.1

-8.1

-4.4

-4.3

General government debt

99.3

99.2

98.6

97.6

95.5

123.0

121.3

120.4

Sources: IMF, October 2020 World Economic Outlook; data provided by the authorities; and IMF staff estimates.

1/ The projections incorporate disbursements from the EU Recovery and Resilience Facility amounting to about 1.5 percent of GDP per year in 2021–24.

2/ Output per worker.

3/ 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.

4/ The headline balance includes financial sector support equal to 0.2 percent of GDP for 2016, and 0.1 percent of GDP for 2017.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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