Spain Goes under IMF's Scrutiny

Well it looks like the focus is on Spain next.

According to the IMF,Spain must make far-reaching, comprehensive reforms, including labour market reforms, and its economic recovery remains fragile.

“The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness,” the IMF said in a report following a regular review of Spain’s economy.

“This needs to be complemented with growth-enhancing structural reforms, building on the progress made on product markets and the housing sector, especially overhauling the labour market,” it said.

After a weak and fragile recovery the economy would grow by 1.5-2.0 per cent in the medium term, it said.
“Our central scenario is one of continued adjustment of the various imbalances with growth rising gradually to 1.5-2 per cent in the medium term,” the report said.

The report was released as Spain struggles to cut a large budget deficit and convince investors it will face no Greek-style debt crisis.

The IMF said in April it sees Spain’s economy contracting 0.4 per cent in 2010 from a year earlier and growing 0.9 per cent in 2011, more pessimistic than the government’s own forecasts of a 0.3 per cent contraction in 2010 and 1.8 per cent growth in 2011.

Stronger export growth would help offset a slow recovery in domestic demand. It said private demand was weighed down by uncertainty and the need to reduce indebtedness, the IMF said.

Other factors weighing on potential growth and underlining the importance of growth-enhancing structural reforms included slowing population growth, high unemployment and weak investment.