IMF report suggests that Spain may be optimistic for future

Pedro Sánchez and Pablo Iglesias present the 2021 budget
Pedro Sánchez and Pablo Iglesias present the 2021 budget Credit: La Moncloa flickr

A LENGTHY report issued on November 13 by the International Monetary Fund (IMF) has concluded that Spain’s financial problems because of the Covid-19 pandemic may not be as dire as originally forecast due to a strong third quarter.

Much depends on the results of the fourth quarter 2020 which will be negatively influenced by the return to the State of Alarm and there could well be a further slowdown if work restrictions continue for too long.

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There are a number of external problems which impact on the Spanish economy a high percentage of which depends on tourism and Spain has been hit harder than most European economies with GDP (Gross Domestic Product) still 8.7 per cent down on last year.

One area which could impact hard and is difficult to forecast with any certainty is that of bad debts rising “disproportionately” hitting banks profitability as eventually Government loan support will be withdrawn.

Effectively, the IMF recommends that the Government should concentrate on supporting viable businesses and accept that there will be a number of weaker companies that do not survive.

Initially the Spanish Government forecast a 7.2 per cent growth in 2021 but in the budget forecast, this has been upped to 9.8 per cent as the European Union recovery fund comes online but the IMF think that this is overoptimistic and that 7.2 per cent is more likely to be the final result.

Whilst not forecasting a dreadful year ahead, the IMF did warn “Policies need to continue to mitigate the risk of the recession morphing into financial sector stress with even higher real and social costs.”

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