IMF Executive Board Concludes 2021 Article IV Consultation with Spain
IMF News, February 15, 2022
Source details
- Canonical URL
- IMF Executive Board Concludes 2021 Article IV Consultation with Spain
Other formats
Bibliographic details
- Published: February 15, 2022
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).