After five years in crisis, the IMF on Tuesday predicted the Spanish economy would continue to struggle, with the recession deepening this year, accompanied by record levels of unemployment.
In its latest World Economic Outlook report, the International Monetary Fund forecast the Spanish economy would decline 1.6 percent this year after on top of a 1.4-percent contraction in 2012. A timid recovery is due to set in next year when GDP is expected to grow 0.7 percent. The IMF previously forecast GDP would shrink 1.5 percent this year and grow 0.8 percent in 2014.
The European Commission expects the Spanish economy to contract 1.4 percent this year, while the government’s official forecast remains for a decline of 0.5 percent, although the administration is expected to revise that figure when it presents its updated macroeconomic forecast on April 26.
Within the euro zone, only Greece and Portugal, both of which have received bailouts, and Slovenia, which may also have to be rescued, are expected to perform worse than Spain.
One of the most discouraging aspects of the report is the IMF’s prediction that the jobless rate will continue to climb from 25.0 percent last year to 27.0 percent this year, before easing only slightly to 26.5 percent in 2014. A source at a central bank said that Spain so far had been able to bear the brunt of rampant unemployment because of the safety net provided by public subsidies and assistance from family members, but warned that these back-up resources are starting to run out.
One of the factors currently in favor of Spain is the improvement in the sovereign debt markets. “Spain has ceased to be a systemic risk at the moment; there is no fear of financial contagion, but within the country everything is going badly and nobody can take for granted that the levels seen before the crisis will be recovered,” the central bank source said.
However, Spain’s debt/GDP ratio is expected to rise to close to 90 percent this year, with the annual interest-payment bill amounting to 39 billion euros.
Referring to peripheral euro-zone countries such as Spain and Italy, IMF chief economist Olivier Blanchard said: “The process of internal devaluation is slowly taking place, and most of these countries are slowly becoming more competitive. External demand, however, is just not strong enough to compensate for weak internal demand.”