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IMF raises Spain’s growth forecast despite ongoing political stalemate

The economy will expand 3.1% this year and 2.2% in 2017, says the global financial institution

A mural announcing the 2016 IMF meetings.
A mural announcing the 2016 IMF meetings. AFP

Spain may appear to be ungovernable at the moment, but its GDP is not bothered. The euro zone’s fourth-largest economy will grow 3.1% this year and 2.2% in 2017, according to new estimates released on Tuesday by the International Monetary Fund (IMF).

The fact that the nation has been under a caretaker government for nearly 10 months has not reduced the international lending body’s growth forecast for Spain. On the contrary: its experts have raised their July forecast for 2016 by half a percentage point, and their estimate for 2017 by a tenth of a point.

In April, the IMF warned Madrid that more adjustments will be necessary

These estimates are higher that the own Spanish government’s latest official forecast of 2.7%, released in April, and in line with the views of other global analysts. The IMF figures represent a beacon of economic hope amid the political turmoil.

“We have marked up our forecast for Spain this year despite the prolonged political uncertainty, and there are a couple of reasons for that,” said Gian Maria Milesi-Ferretti, the deputy director of the IMF’s research department, at a press conference in Washington DC. “The economy has been quite strong in the first half of the year. That weighs a lot on determining what the growth rate is going to be for 2016.”

“A second factor is an external environment that has been more benign than observers, including ourselves, were thinking, especially after the UK vote of last June. With this more favorable external government, very good market conditions, there has been less emphasis on the dangers that a protracted period of political uncertainty can bring.” he added.

But the IMF official also warned that the Spanish government will “need to resume its fiscal adjustment in a gradual fashion, given that public debt is reaching 100% of GDP, and the fiscal deficit has overshot targets in part because of the fact that there is more political uncertainty.”

Christine Lagarde, head of the IMF.
Christine Lagarde, head of the IMF. AFP

The Spanish economy’s growth rate this year is nearly twice the euro zone average of 1.6%, although slower than 2015. Unemployment figures continue to be disappointing, however: there are no significant changes to the IMF’s forecast for the Spanish job market, which is expected to have a unemployment rate of 19.4% in 2016 and 18% in 2017. Only Greece is doing worse, with figures in excess of 20%.

Spain’s public accounts are taking a bigger hit from the prolonged lack of government. In July of this year, the combined public deficit of all public administrations , excluding local councils (ayuntamientos), was already 3.27% of GDP, making it unlikely that Spain will meet its EU target of 4.6% for this year.

In April, the IMF warned Madrid that more adjustments will be necessary despite the years of austerity and budget cuts.

The mission is coming

Last spring, the IMF mission that travels to member countries to draw up the organization’s annual economic report decided to postpone its Madrid visit until a new government was up and running. Spain had held a general election with a fractured outcome, and parties were still bickering over potential governing deals.

Now, with a second election come and gone and no progress made, the IMF has decided that it can wait no longer, and that the mission will travel to Spain between October 13 and 25, government or no government.

English version by Susana Urra.

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