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International Monetary Fund. European Dept.
Andorra, the IMF’s newest member since October 2020, participated in its first Article IV consultation with a commitment to further enhance transparency. Tourism and banking-related services dominate economic activity in the euroized economy. The country enjoys long-standing political stability, a good track-record of fiscal discipline, a gender-balanced work force, and internationally competitive ski resorts. The authorities are managing the pandemic well with universal testing and expanded hospital capacity that kept fatality rates very low despite high case-loads. The testing strategy helped Andorra implement more targeted internal restrictions than in neighboring countries. At the same time, emergency fiscal measures stabilized real incomes and supported firms.
Khalid ElFayoumi, Ms. Izabela Karpowicz, Ms. Jenny Lee, Ms. Marina Marinkov, Ms. Aiko Mineshima, Jorge Salas, Andreas Tudyka, and Ms. Andrea Schaechter
Many European economies have faced pressure from rental housing affordability that has widened social and economic divergence. While significant country and regional differences exist, this departmental paper finds that in many advanced European economies a large and rising share of low-income renters, the young, and those living in cities is overburdened. In several locations, middle-income groups also increasingly face rental affordability issues.
Francesca G Caselli, Mr. Francesco Grigoli, Weicheng Lian, and Mr. Damiano Sandri
Using high-frequency proxies for economic activity over a large sample of countries, we show that the economic crisis during the first seven months of the COVID-19 pandemic was only partly due to government lockdowns. Economic activity also contracted because of voluntary social distancing in response to higher infections. We also show that lockdowns can substantially reduce COVID-19 infections, especially if they are introduced early in a country's epidemic. Despite involving short-term economic costs, lockdowns may thus pave the way to a faster recovery by containing the spread of the virus and reducing voluntary social distancing. Finally, we document that lockdowns entail decreasing marginal economic costs but increasing marginal benefits in reducing infections. This suggests that tight short-lived lockdowns are preferable to mild prolonged measures.
International Monetary Fund. European Dept.
This Selected Issues paper presents a preliminary assessment of recent labor market reforms in Spain, where the 2012 labor market reforms are making a difference. Wage moderation is contributing to a visible recovery in headline employment growth, and the reforms have made the labor market more resilient to shocks. Some evidence exists that the contribution of temporary contracts to employment growth has started to decrease. However, the reliance on temporary workers remains strong overall, and further structural reforms will be required to reduce the still very high level of long-term, structural unemployment.
International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that Spain’s recovery has gathered speed, but unemployment remains very high. Growth has picked up and is expected at 3.1 percent in 2015 and 2.5 percent in 2016, well above the euro area average. Strong policy implementation has supported the return of confidence, and significant external tailwinds are helping the rebound. However, deep structural problems limit Spain’s growth potential going forward, and vulnerabilities remain. The high structural unemployment and pervasive labor market duality, and the lack of economies of scale of Spain’s many small firms hold back medium-term growth. Public and private debt levels are still high and are likely to keep weighing on consumption and investment.