IMF Executive Board Concludes 2022 Article IV Consultation with Spain
January 19, 2023
Washington, DC: On January 18, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Spain.
Economic activity in Spain has remained resilient despite the new headwinds posed by the fallout of Russia’s invasion of Ukraine. Strong rebound in tourism and other services have supported growth this year. Employment has surpassed its pre-pandemic level. However, elevated global energy and food prices, the weakening of trading partners’ growth, deteriorating consumer and business confidence, and rising interest rates have slowed the recovery of output.
Elevated inflation in 2022 was largely caused by surging energy prices and persistent supply constraints. After reaching double-digit levels in the summer, headline inflation declined to 5.8 percent in December, reflecting a drop in European gas prices and the impact of energy support measures. Core inflation remains above 6 percent due to a gradual passthrough of higher energy costs to broader prices and, possibly, diminishing spare capacity in the economy. Wage pressures have been contained so far.
Growth is projected to moderate from 5.2 percent in 2022 to 1.1 percent in 2023 reflecting the effects of high energy and food prices, tighter financial conditions, and weaker external demand. Output is projected to reach its pre-pandemic level by early 2024. Headline inflation is expected to continue to moderate gradually in 2023 reflecting a high base in 2022, the reduction of supply bottlenecks, and some normalization of global fossil fuel prices. Nevertheless, both headline and core inflation are likely to remain above the 2-percent target in the near term.
Uncertainty around the outlook is significant. Downside risks include tighter-than-expected financial conditions, weaker global demand, and further energy price volatility. On the upside, accelerated use of NGEU funds and faster unwinding of household savings could boost domestic demand.
Executive Board Assessment [2]
Executive Directors commended Spain’s economic resilience and strong labor market performance in the context of successive shocks. Directors noted, however, that the outlook is subject to significant uncertainty given vulnerability to spillovers from Russia’s war in Ukraine, weaker global demand, tighter financial conditions, and elevated energy prices. Against this background, they underscored the importance of flexible and carefully calibrated macroeconomic policies as well as strong implementation of the structural reform agenda to support sustainable, inclusive growth.
Directors commended the authorities for their timely policy support to help households and firms deal with surging energy prices. They welcomed the recent steps toward better targeting and greater preservation of price signals in the support package approved for 2023. Directors considered that continued progress to overcome fossil fuel dependency is necessary in the medium term.
Directors noted the improvement in public finances since the pandemic and welcomed the moderately contractionary fiscal stance envisaged in the 2023 budget. They emphasized that a gradual and sustained fiscal consolidation, underpinned by a medium-term consolidation plan, will be needed in coming years to create space for responding to future shocks. Directors also highlighted the importance of adopting additional measures to preserve the sustainability of the pension system.
Directors observed that the financial sector has weathered the pandemic and the fallout from the war in Ukraine well so far, and encouraged its close monitoring to ensure that it remains sound and resilient. They noted that the deterioration of the macroeconomic outlook and the rise in interest rates will likely erode borrowers’ repayment capacity, and called for banks to continue to be forward-looking in their assessment of loan quality and to maintain adequate levels of provisions. Directors also stressed the need to closely monitor the impact of the new temporary banking sector levy on the provision and cost of credit. They commended the progress in addressing the 2017 FSAP recommendations and steps taken to strengthen the private debt resolution framework.
Directors welcomed the progress on the Recovery, Transformation and Resilience Plan and the acceleration of the execution of Next Generation EU (NGEU) funds, which should reduce barriers to productivity growth. They stressed that establishing a system of regular, data-driven, outcome-based evaluation of the reforms will be crucial. To ensure an effective use of NGEU funds, Directors underscored the need to improve coordination at all government levels and with the private sector, and to enhance the collection and reporting of data on execution.
Directors acknowledged the positive initial results from recent labor reforms, with a significant share of workers shifting from temporary to permanent contracts. They noted the importance of continued monitoring to evaluate reform effectiveness and the need to revamp active labor market policies to improve labor matching efficiency and address skill mismatches.
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Spain: Selected Economic Indicators (Annual percentage change, unless noted otherwise |
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Projections 1/ |
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2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
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Demand and supply in constant prices |
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Gross domestic product |
2.0 |
-11.3 |
5.5 |
5.2 |
1.1 |
2.4 |
2.2 |
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Private consumption |
1.1 |
-12.2 |
6.0 |
2.7 |
1.7 |
2.2 |
2.5 |
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Public consumption |
1.9 |
3.5 |
2.9 |
-1.4 |
0.8 |
0.7 |
0.4 |
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Gross fixed investment |
4.5 |
-9.7 |
0.9 |
5.3 |
4.4 |
4.2 |
2.3 |
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Total domestic demand |
1.7 |
-9.4 |
5.3 |
2.0 |
2.1 |
2.3 |
2.0 |
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Net exports (contribution to growth) |
0.4 |
-2.2 |
0.3 |
3.2 |
-0.9 |
0.1 |
0.2 |
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Exports of goods and services |
2.2 |
-19.9 |
14.4 |
18.6 |
5.1 |
3.8 |
3.8 |
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Imports of goods and services |
1.3 |
-14.9 |
13.9 |
9.7 |
7.6 |
3.6 |
3.4 |
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Potential output growth |
1.5 |
-3.2 |
1.4 |
1.2 |
1.1 |
1.8 |
2.3 |
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Output gap (percent of potential) |
0.4 |
-8.0 |
-4.2 |
-0.5 |
-0.5 |
0.0 |
0.0 |
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Prices |
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GDP deflator |
1.5 |
1.2 |
2.3 |
3.9 |
3.8 |
2.7 |
2.2 |
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Headline CPI (average) |
0.7 |
-0.3 |
3.1 |
8.4 |
3.7 |
2.7 |
2.1 |
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Headline CPI (end of period) |
0.8 |
-0.5 |
6.5 |
5.8 |
3.8 |
2.4 |
2.0 |
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Core inflation (average) |
0.9 |
0.7 |
0.8 |
5.1 |
4.6 |
3.4 |
2.5 |
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Core inflation (end of period) |
1.0 |
0.1 |
2.1 |
6.9 |
3.9 |
2.9 |
2.5 |
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Employment and wages |
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Unemployment rate (percent) |
14.1 |
15.5 |
14.8 |
12.8 |
12.8 |
12.5 |
12.3 |
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Labor costs, private sector |
2.2 |
4.0 |
0.0 |
3.4 |
4.5 |
2.5 |
2.1 |
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Employment growth |
2.3 |
-2.9 |
3.0 |
3.1 |
0.5 |
0.8 |
0.6 |
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Balance of payments (percent of GDP) |
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Current account balance |
2.1 |
0.6 |
1.0 |
1.6 |
0.5 |
0.3 |
0.4 |
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Net international investment position |
-73.7 |
-85.7 |
-71.5 |
-62.7 |
-57.6 |
-53.1 |
-49.5 |
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Public finance (percent of GDP) |
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General government balance 2/ |
-3.1 |
-10.3 |
-6.9 |
-4.5 |
-4.6 |
-3.5 |
-3.7 |
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Structural balance |
-3.0 |
-5.4 |
-4.2 |
-4.2 |
-4.3 |
-3.5 |
-3.7 |
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Primary structural balance 3/ |
-0.8 |
-3.1 |
-2.1 |
-2.0 |
-1.9 |
-1.0 |
-1.1 |
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General government debt |
98.2 |
120.4 |
118.4 |
112.8 |
112.1 |
110.0 |
109.0 |
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Sources: IMF, World Economic Outlook; data provided by the authorities; and IMF staff estimates. |
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1/ The projections incorporate allocation from the EU Recovery and Resilience Facility amounting to about 0.4, 1.1, 1.7, 1.3 and 1 percent of GDP from 2021 to 2025. |
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2/ Fiscal projections from 2022 onwards assume an expiration of temporary COVID-19 measures and energy support measures amounting to 1 percent of GDP in 2023. |
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3/ Including interest income. |
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[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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