The International Monetary Fund (IMF) has concluded its 2025 Article IV Consultation with Spain, according to a recent announcement. The consultation, which involved an in-depth analysis of Spain's economic situation and outlook, was finalized with the consent of Spanish authorities for the publication of the Staff Report.
Spain's economy grew by 3.2% in 2024, positioning it as one of the fastest-growing economies in the euro area. This growth was driven by strong services exports and labor force expansion, partly due to immigration. Despite these positive developments, GDP per capita gains have been modest due to high employment growth rates. Spain continues to face challenges such as low employment rates compared to other European countries and a persistent productivity gap with the euro area and the US.
Projections indicate that Spain's growth will slow to 2.5% in 2025 and further to 1.8% in 2026 as factors like export growth and working-age population gains normalize. Private domestic demand is expected to support this growth, bolstered by a decrease in household saving rates and increased investment. Inflation is projected to decline towards the European Central Bank’s target by the end of 2025.
"Two major drivers of Spain’s strong growth have been, on the supply side, labor force growth, and on the demand side, services exports," stated IMF officials. They noted that recent migration inflows have significantly contributed to labor force growth while tourism recovery post-COVID-19 has boosted services exports.
Despite progress in reducing unemployment rates, which remain among the highest in Europe at approximately 11%, disinflation trends are continuing steadily. The IMF warns that risks are mainly on the downside with potential threats including trade policy uncertainty and domestic political fragmentation impacting fiscal responses.
The IMF recommends leveraging current strong growth momentum for fiscal consolidation efforts aimed at rebuilding fiscal space and reducing sovereign debt risks within an enhanced medium-term fiscal framework. "Staff recommends frontloading...planned adjustment over 2025-2029 rather than 2025-2031," emphasizing timely tax increases and spending reductions.
While systemic financial risks are considered low with well-capitalized banks, ongoing efforts should aim at enhancing resilience further. Measures such as stimulating housing supply could address affordability issues caused by rapid house price increases without destabilizing financial systems.
For income-per-capita convergence towards higher-income economies, boosting productivity alongside raising employment rates remains crucial for Spain. Strategies include completing single markets for goods/services within Spain/EU, improving venture capital availability through incentives, and fostering higher education excellence via performance-based university funding.
In summary: "Enhancing activation policies...is key to durably reducing unemployment," while reforms are needed "that facilitate firms’ scaling-up and innovation." These measures aim at closing productivity gaps critical for long-term economic stability.
Sources: IMF World Economic Outlook; data provided by Spanish authorities; IMF staff estimates.
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