The IMF insists; The Spanish economy won´t grow above 3% in 2016...

The IMF insists; The Spanish economy won´t grow above 3% in 2016 as Spanish Minister of Finance, De Guindos, predicted

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Christine Lagarde fmi

 Christine Lagarde fmi

After seven years of crisis, the main construction companies have turned back to profitable results.  These multimillionaire contracts seems to enlarge the gross domestic product (GDP) in Spain. The Spanish economy is growing above the European average largely on the back of some unprecedented monetary stimulus and low oil prices, but the International Monetary Fund (IMF) does not have them all along. There is enough evidence that another bubble could start again in the construction sector if thigs are not done properly. As tourism keeps growing in some areas of the country there is a need to increase the offer in hotel beds and restaurants, being the country with more bars for habitant with 1 bar for every 127 people. Alert the structural problems of the Spanish economy and puts the focus on the low potential growth in the medium term.

The report under the so-called Article IV, whereby the Washington agency makes an overall assessment of the economy and raises a number of recommendations, light a red light on the vigor of Spain in the medium term. The Spanish economy is squeezing the throttle this year, but from 2016 begins to lift off and, according to the report, each year will be slower than the previous one: the expected growth for this year and next, from 3.1% and 2.5%, respectively, continues to diminish in subsequent years to 1.8% in 2020.

The latest forecast of the Government of Rajoy pointed to growth of 3.3% for 2015. The Fund has supported the economic policies of the Executive of the PP and has revised upwards its forecast for more than a year ago. So it does in the post-report Chapter IV statement. “The reforms are contributing to the recovery. The labor reforms and moderate wage growth have underpinned employment and helped restore competitiveness,” said the executive board, responsible for evaluation, but adds that “rates Persistently high unemployment, low productivity and still substantial levels of public and private debt continue to pose policy challenges for the future. “

Spain has a problem with growth potential, which is the breakthrough that could achieve an economy if put in place all the resources. These have declined and the potential is down. The IMF estimates that the rate stood at 3% in the period 1995-2007 and fell to 0.75% from the start of the crisis. The fall in investment and the rise in structural unemployment (which is recovered with the change of cycle or stimulus measures) have weighed the possibilities of Spain. The Fund sees the same weaknesses in France.

More structural reforms

“Without further reforms”, experts say, “potential growth is expected to remain low.” The Fund places it at 1.5% on average between 2015 and 2020 and a structural unemployment of 16%. Instead, but makes a number of estimates on how much it would improve with some structural changes. For example, reforms that raise the level of productivity of Spanish companies at the level of German and an increase in the percentage of SMEs over the economy would increase the potential by 2%. Improved labor market duality and other shortcomings, at 10%.

“If we want to maintain strong growth, it is necessary to take steps towards the long term,” he summarized the head of the IMF mission to Spain, Helge Berger. The agency asks a series measures that probably can not count on this term: another twist to the labor reform, the law liberalizing professional services and more agile mechanisms for companies exceeding insolvencies.

One of the worst legacies of the crisis is a volume of public and private debt, which almost triples the economy. Although the liability of companies and households ended 2014 at 182.5% of GDP, 24% less than in 2007 even pinioning many growth projects.

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