Saturday, January 22

The IMF lowers its growth forecasts for Spain to 4.6% this year and 5.7% for 2022



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, while that for the next fiscal year, the rebound in activity is expected to be limited to 5.8%, six tenths lower than previously expected.

According to the preliminary conclusions of the IMF technical staff after their visit to Spain for the preparation of ‘Article IV’, the Spanish economy continues to recover from the deep recession caused by the pandemic, with a GDP contraction of 10.8% in 2020, although production still remains below the level before the pandemic, in part due to the persistent impact of the pandemic in the sectors of

intensive personal contact and bottlenecks in global supply chains.

The forecasts of the IMF mission to Spain are thus close to those recently published by the Bank of Spain, which predicts growth of 4.5% this year and 5.4% the following, moving away from the macro picture of the Government, which maintains the forecast of growth of 6.5% in 2021 and 7% in 2022.

In their analysis, IMF technicians consider that private consumption will continue to be the main engine of short-term growth in Spain, underpinned by a solid recovery in the labor market and the normalization of household savings.

In this way, they foresee that investment will take hold in 2022, thanks to the strength of demand, the continuity of favorable financing conditions, a gradual disappearance of bottlenecks in global supply chains, and a more rapid deployment. of Next Generation EU (NGEU) funds.

In this regard, 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.

Likewise, in their conclusions they also anticipate that external demand, in particular international tourism, will continue to recover next year as vaccination rates in the world increase.

Regarding price developments, the IMF mission considers it likely that the headline level of inflation will remain high in early 2022 due to high energy prices and disruptions in supply chains, but is confident that it will continue. moderate in the second half of the year as these factors dissipate.

In this sense, it warns of the importance of salary negotiations continuing to internalize the transitory nature of the

current drivers of inflation and avoid a vicious cycle of higher wages leading to higher inflation.

In any case, the Fund’s technicians emphasize that the uncertainty surrounding the outlook is high, and the evolution of the pandemic continues to be one of the main risks, especially if the

Vaccines turn out to be less effective against newer variants, while the pace of recovery will also depend on the duration and magnitude of disruptions in supply chains.

On the side of upside risks, a faster release of accumulated household savings would facilitate a more vigorous recovery in domestic demand, adding that the rate of absorption of EU funds and the efficiency with which they are used “will determine the trajectory of growth in the coming years “.

In this way, for IMF technicians, the NGEU funds offer “an exceptional opportunity” to increase the potential growth of Spain and make it more inclusive and sustainable, by supporting strategic investments and speeding up the necessary structural reforms.

To ensure the effective use of investment funds, the IMF considers it essential to select projects with high social returns, efficient coordination and a focus on transparency and accountability, while the structural reforms envisaged – if they are well designed and are executed properly – they will amplify the positive effect of the planned investments.

“It will be important to establish a framework for evaluating the effectiveness of these reforms, periodically and based on data,” notes the IMF mission, noting that the success of recovery plans in different European countries could help generate support policy for future tax collaboration at EU level.


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