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July 14, 2014

Improved forecasts for Spain from the IMF

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Improved forecasts for Spain from the IMF

According to the International Monetary Fund (IMF), Spain will significantly improve the growth of the national GDP in 2014 and 2015. Thus, the IMF raised its GDP growth forecasts for Spain to 1.2% this year and 1.6% in 2015. That is, the previous forecasts have improved by three and six-tenths, respectively. At the same time, the president of the IMF reiterates the petition to the Government of Spain, that the rate of value added tax (VAT) has to be increased and reduced the size of social security contributions.

The IMF believes that Spain left behind and the economic recession raised its GDP growth forecasts to 1.2% this year and 1.6% in 2015, compared with 0.9% and 1%, respectively, previously published. These data are presented in the conclusions included in Article IV of 2014. However, the IMF again emphasizes the need for Spain to raise the rates of indirect taxes such as VAT, as well as to reduce social security contributions. IMF, headed by Christine Lagarde, said that Spain has already passed the worst, but calls for further structural reforms, because “the impact of the crisis persists”.

The IMF also improves forecasts Spain's unemployment rate to 24.9% this year and 23.8% in the next 2015, against 25.5% in the data and 24.9%, respectively, which were included in its previous forecasts. Nevertheless, the international organization believes that Spain will not be able to reduce this figure to 20% till 2019.

In addition, the IMF supports the warning about low inflation with further prognoses even smaller than it was registered in May 2014. Thus, in 2014 is expected to further decline in inflation from 0.1% to 0.8% this year and the next year with 0.7% and 1.3%, respectively, mentioned a month ago. The public debt will continue to grow with the forecast 99% and 101% of the value of GDP in 2014 and 2015, respectively.

Among the major problems facing the Spanish economy, according to the IMF, is the high unemployment rate of 26%, the duality of the labor market, the decline of living standards, low productivity and high levels of debt. At the same time within the recovery of the Spanish economy, the IMF emphasizes the stability of the financial markets, reducing of unemployment rate through labor reform implementation in 2012 and strong exports.


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