The International Monetary Fund (IMF) has substantially cut its growth expectations for the Spanish economy in 2021 and 2022, reducing the expected expansion of GDP this year to 4.6% from the 5.7% anticipated last October. For next year it forecasts that the rebound in activity will be limited to 5.8%, six tenths of a percentage point lower than previously expected.
So the IMF’s forecasts are close to those recently published by the Bank of Spain, which predicts growth of 4.5% this year and 5.4% the following year, moving away from the government’s macro picture, which maintains the forecast of 6.5% growth in 2021 and 7% in 2022.
According to the IMF’s preliminary conclusions following its Article IV visit to Spain, the Spanish economy continues to recover from the deep recession caused by the pandemic, with GDP contracting by 10.8% in 2020. However, output still remains below the pre-pandemic level, in part due to the continuing impact of the pandemic on personal contact-intensive sectors and bottlenecks in global supply chains. In their analysis, the IMF staff sees private consumption continuing to be the main driver of Spain’s near-term growth, underpinned by a robust labour market recovery and a normalisation of household saving.
The IMF expects investment to firm up in 2022, thanks to robust demand, continued favourable financing conditions, a gradual fading of bottlenecks in global supply chains, and a faster deployment of Next Generation EU (NGEU) funds. The IMF mission estimates that the cumulative impact of NGEU funds on Spanish GDP could be between 1.5% and 2% by the end of 2022.
In addition, the International Monetary Fund (IMF) warns the Spanish government about the pension reform, which will make the system more unsustainable if complementary measures on spending and revenues are not taken. It points out that “the pension reform has prioritised social acceptability and adequacy, but concerns remain about sustainability if additional measures are not implemented”. The organisation states that the measures approved in the first package alone, which will come into force on 1 January, will mean an increase in spending of 42 billion euros, that is, some 3.5 percentage points of GDP.
The international organisation warns of the effects that the indexation of pensions to the CPI on the one hand, and the repeal of the sustainability factor on the other, will have in the medium term. It is worth remembering that, at present, state spending on pensions amounts to 13 percentage points of GDP, although once the effects of the current reform have been deployed, this level would rise to 16.5%.
