On November 19, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Spain.
The Spanish economy continues to make up ground lost during the crisis, but the recovery is maturing. Real GDP growth is projected to moderate to 2.5 percent in 2018 and 2.2 percent in 2019 before gradually slowing to its potential rate, estimated at around 1.75 percent over the medium term. Strong private consumption and investment demand were the main drivers of growth. The external position strengthened further, supported by continued current account surpluses, but is still moderately weaker than suggested by medium-term fundamentals. The labor market has improved but significant challenges remain. While the unemployment rate fell to 14.6 percent, below its long-term average, Spain’s youth joblessness, the share of temporary contracts, and involuntary part-time employment remain among the highest in the EU.
Public debt remains close to 100 percent of GDP. The headline fiscal deficit has continued to come down in 2017 and is projected to fall below the 3 percent of GDP Maastricht criterion in 2018. But much of this reduction can be attributed to the strong economic cycle and low interest rates, while there was no adjustment in the underlying fiscal position in 2018.
The private sector has deleveraged further amidst favorable lending conditions, while the health of the banking system has steadily strengthened. The total private sector debt-to-GDP ratio fell by nearly 10 percentage points in 2017. But some segments of corporates and households are still overly leveraged, and loans for consumer durables are expanding quickly, though from a low base. The decline in nonperforming loans (NPLs) and foreclosed assets has accelerated, helped by economic growth, rising property prices, and bank sales of troubled assets. Nevertheless, the NPL ratio for lending in Spain was still at 6.4 percent in the second quarter of 2018. Spanish banks continue to lag European peers in terms of capital ratios.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.